Everyone Squeezes the Merchant

Regardless of the industry, market, or customer base, every merchant and service provider faces a seemingly unending set of pressures on profitability. They get squeezed from every angle, and are often forced to operate on thinner margins just to remain in business. Among the myriad costs of running a business is enabling customers to “finance” purchases as a means to close the sale. This hidden cost silently bleeds profits while the merchant remains focused on how to beat the competition.

Merchants can fend off normal competition with differentiated services, enhanced engagement through loyalty programs, investment in traditional, online, and social media advertising, and, as a last resort, discounted prices. However, customers still have to be able to pay for the product, and this is where the challenge lies.

A vast majority of consumers in the US prefer to use credit to make a purchase. This is as much a sign of our increasingly cashless society as it is an indicator of a person’s ability to pay at any given moment. For most, the go-to choice is a major label credit card, like MasterCard, Visa, and American Express. Next in line are specialized lines of credit associated with specific vertical markets – for example, GE CareCredit for medical expenses—or “easy-payments” term loans. And there are still a few consumers that prefer to pay with cash.

For the merchant, the order of preference is often the exact opposite. Credit card acceptance has grown less attractive in recent years. Interchange fees – the percentage a merchant pays the card issuer for accepting the card payment—and fraud liability costs have steadily increased. In 2016, the major card brands shifted much of the liability for fraudulent charges to the merchant. This liability shift has even created a new line of business in chargeback and fraud mitigation services – yet another potential cost for a merchant.

Term loans may seem attractive to consumers, and providers may not charge interchange, but many include egregious interest fees—which frighten off consumers and leave merchants at the altar. In some cases, the merchant only receives full payment at the end of the term, resulting in him financing the purchase himself– and paying for the privilege in the form of fees.

And none of these options do anything to build loyalty to the merchant or its brand. One-time sales are fine, but building an ongoing relationship with the customer is essential for the merchant looking for repeat business.

So, what’s a merchant to do? Continue to suffer death by a thousand fees or suffer the insult of funding competitive marketing against their own interests?

Private Label credit cards are one answer. However, most are co-branded by major issuers, and therefore carry the negative impacts of interchange and portability to competitors. This open-loop approach to private label offers little relief for a merchant.

Making private label credit useful requires a closed-loop approach. Private label merchant-branded revolving line of credit solutions—such as those offered by Lendaily—are upending the traditional structure that squeezes so much profit out of merchants. These progressive solutions address the merchant’s interests of preserving their brand and deepening customer relationships while delivering competitive consumer financing. Bypassing the traditional credit card channels, consumers are offered FICO-based lines of credit tied to the issuing merchant, establishing a one-to-one relationship with the customer. The archaic interchange system, and the egregious term-loan landscape are completely bypassed, and these finance products deliver substantial savings in terms of lower fees and full payment to merchants within days, if not hours.

Certainly, every merchant must pursue and nurture the relationship with their customers through loyalty and outreach, but this novel approach creates an advantageous landscape for repeat sales and loyalty. It staunches the outflow of money and elevates the merchant above the competition – a win-win situation for most, and a tremendous step forward for all.

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