retail merchant pool concept; asian woman business owner using digital tablet checking amount of stock product inventory on shelf at distribution warehouse factory

Retail Merchant Pool is Shrinking: Why You Should Move to B2B

April 12th, 2022

The retail merchant pool has traditionally been the primary source of revenue for Independent Sales Organizations (ISO). However, as the digital transformation wave sweeps across industries, this pool is shrinking. Consumers are moving to online shopping, making brick-and-mortar stores obsolete. ISOs that previously provided ACH payments platforms to these retail merchants are beginning to feel the impact of the declining pool. This article looks at how ISOs can discover other opportunities to compensate for the shrinking retail merchant pool.

Retail Merchant Pool in the Post Pandemic Period 

The Covid-19 pandemic affected virtually every element of the business environment. From disruptions in the supply chain to changes in consumer behavior, the retail merchant appears to have taken much of the brunt. However, resilience and adapting to changes in the business environment have seen most retailers remain in business. Retail merchants and indeed all other sectors have built on pandemic survival strategies to thrive in the post-pandemic business environment. An area that has continued to define the business environment even after the return to normalcy is the digital transformation.

Although digital transformation had been gaining momentum, studies show the pandemic accelerated the transformation by about seven years. More and more businesses are moving online to serve a growing virtual client base. Consumers’ application of contactless transactions will continue to rule most industries. Even transactions that were previously thought to be purely in-person, like real estate viewing, are being completed online.

The business organization has to either implement a digital transformation or become obsolete and eventually be pushed out of the market. Retail merchants are a good example. The stores have one option: go online and integrate digital payment methods, like ACH, into their websites. As more and more move in this direction, merchant stores that continue to maintain a brick-and-mortar business model may experience a decline in their bottom line.

Independent Sales Organizations that were focused on providing payment solutions to the brick-and-mortar stores, are also feeling the impact. The brick-and-mortar stores may never regain their pre-pandemic business levels. We urge ISOs to remember that those retail merchants aren’t their only option for business – and this environment is presenting numerous opportunities for ISOs to expand their ACH payments business. Some of these opportunities include:

  • Business-to-business (B2B) payments
  • Accounts receivable management
  • Recurrent bills payment
  • Virtual payment

Competition in ISO Industry 

Fierce competition exists in the retail merchant sector. As more and more retail merchants move their businesses online, competition intensifies since ISOs have to fight for the remaining retail merchants. The competition calls for an upward review of the marketing and sales approach amid a dwindling portfolio.

Now more than ever, ISOs should be open to new opportunities, solutions, strategies to selling and industries to find ways to continue to grow their bottom line. There is a paradigm shift in the consumer retail sector. That’s where we come in – with more opportunities out there in marketplaces that are quickly adopting ACH payments.

The Future of ACH Payments is B2B

By now, you can begin to see what is causing a decline in retail merchant portfolios. Instead, we have refocused our efforts on B2B businesses and seen exponential growth in revenue and residual payouts to our ISOs who are also moving into the B2B space.

ACH payment transaction using mobile phone; Close up hands holding mobile phone with app for send and receive money. Woman and customer holding smartphone and making payment transaction. Smart phone screen displaying digital payment sent.

ACH has quickly become a preferred method of payment for business-to-business transactions. A study by the Federal Reserve shows ACH payments have continued to grow in popularity when compared to paper checks and debit cards.  NACHA estimates ACH business-to-business payments have grown by over 20.4% since the beginning of the pandemic. This growth is expected to continue in the post-pandemic period. If these studies are anything to go by, then the future of ACH is B2B.

The nature of most B2B businesses cause higher amounts of money trade hands. To reduce the higher credit card fees that come with these transactions, ACH payment methods are recommended as an alternate to not only have the business costs, but help the ISOs make more money. The result: residual payout growth even after an ISO layers on their own fees to already low ACH processing fees. Nevertheless, businesses can benefit from the payment processing fees that are still lower than credit card fees they used to pay.

What Drives ACH Growth in B2B?

The advantages of using ACH payments for business-to-business transactions account for the largest portion of its growing popularity. Digitization of most processes also contributes to the growing demand for ACH payment in business-to-business transactions. Here are some of the benefits that make ACH a preferred mode of payment for B2B transactions.

Lower Acceptance Costs

ACH payments provide the most cost-effective mode of payment in B2B transactions. The ACH rates are considered almost flat. The rates do not vary with the ticket size, like the debit and credit cards. Although paper checks may also provide an almost flat rate; accounts receivable managers sideline them due to their risks and labor-intensive processing features.

Mitigation of Risk

ACH payments reduce the risks associated with paper checks by eliminating the risk of forgery or having checks lost or stolen. All ACH transactions are encrypted and direct unlike checks which are more prone to be compromised. ACH transactions can help any business accomplish protecting your customers account information and this is always our priority.

Improved Efficiency

When compared to paper checks, ACH payments enhance efficiency in the accounts receivable department. AR team members do not have to undertake the tedious and lengthy processes of depositing checks and maintaining manual records.

Other than the benefits that accrue to the AR department, ACH payments are gaining popularity due to the growth in contactless modes of payment. As businesses roll out online and virtual payment methods, they are also reciprocating it in their AR management.

Partner with VCI to Discover more Business Opportunities 

VCI understands that most ISOs are experiencing a decline in their retail merchant portfolio. As your payment processing partner, VCI is consistently looking for other opportunities to sustain business. Partnering with VCI allows you to discover trends in the industry and respond appropriately to create a competitive advantage. When you work with us, you do not have to rely on one product line. We believe in product diversification as a way of generating more revenue.

Contact Us Today 

Profits in the brick-and-mortar retail merchant business are declining. A decline in the profitability of retail merchants impacts the portfolio of most ISOs. However, your profits do not have to follow the same trend. You can continue making profits by moving your ACH payment services to B2B transactions. Contact us today to discover more opportunities in the ISO industry.