12/3/2023 0 Comments Credit card terminal suppliersAmong such services, small businesses are most attracted to business credit cards (which appeal to 40 percent), fraud management (37 percent), and accounting solutions (33 percent) (Exhibit 2). Seventy percent of the small businesses we surveyed use at least one value-added service from their payments provider, and respondents express interest in purchasing additional services in the future. Small businesses are increasingly drawn to ISVs by their growing lists of value-added services, which enable them to consolidate their business with a narrower set of providers-which in turn creates new revenue streams for ISVs. Toast is a close second in the food and beverage industry, where overall ISV adoption stands at about 65 percent. They satisfy additional small-business needs: they are easy to set up and use, and payment acceptance costs are both lower and more transparent than those offered by incumbents.Īcross all industry verticals, the ISVs most used by small businesses are Square and Clover, our survey revealed. Together, this evidence supports the expectation that ISVs will continue to gain share.Īccording to survey respondents, ISV solutions are appealing not only because they help merchants manage their business better. 3 In 2021, 5.4 million applications to start new companies were submitted to state and federal agencies-a 50 percent increase since 2019, according to the US Census Bureau’s Business Formation Statistics, 2021. The survey also found that ISVs are the overwhelming choice for new businesses, which are forming at a record-breaking pace in the current economy. Our survey found that about 50 percent of small businesses now use ISVs as payment providers, and 15 percent are in the process of transitioning to an ISV provider (Exhibit 1). 2 See Ashwin Alexander, Vik Iyer, and Julie Stefanich, “ Merchant acquiring and the $100 billion opportunity in small business,” McKinsey, October 11, 2021. With this value proposition, ISVs have captured significant market share relatively quickly. ISVs compete with legacy point-of-sale solutions by offering a fundamentally different value proposition: Rather than just processing payments, they aim to help small businesses manage their operations easily and digitally. But incumbent acquirers and other players can still act on several opportunities for growth-if they move quickly. In addition to providing business management capabilities, ISV solutions are driving up adoption by offering ease of use, relatively low transaction costs, and value-added financial services, such as accounting and payroll.Īs the acquiring industry becomes increasingly digital, the movement of small businesses toward ISVs will likely continue. The survey revealed that ISVs are rapidly encroaching on incumbent acquirers’ market share. To determine how widely small businesses (those earning less than $10 million in annual revenues) have adopted ISVs and to discover the source of their appeal, McKinsey surveyed over 800 businesses in its annual Merchant Acquiring Survey. This article is a collaborative effort by Ashwin Alexander, Andy Dresner, Arjun Murthy, Rachit Saxena, and Tuedy Wilson.
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