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As credit card processing options expand, banks appear to be losing out to nonbank platforms when it comes to providing transaction services to small businesses.
A May 2017 survey by Mercator Advisory Group found that more than three-quarters of US small businesses surveyed said they use a nonbank platform to process credit and debit card payments. By comparison, 59% said they use a merchant bank.
Some 1,600 US small businesses with annual sales of $500,000 to $5 million were surveyed.
The single most common option for payment servicing was merchant banks, followed by “point of sale (POS) terminal provider,” PayPal and other options. But in aggregate, POS providers, PayPal, Square and other nonbank options added up to a greater percentage than banks.
“Square is more popular with the smaller-sized businesses because it is often considered easier to set up and a less expensive option for small businesses with in-store operations,” said Karen Augustine, senior manager of primary data services at Mercator Advisory Group.
Mercator noted that small businesses generally need a wide array of services that are also required by larger merchants, such as couponing and mobile receipts. And third-party transaction providers often offer smaller merchants those ancillary services, it noted.
“No matter what the size segment, the complexity of the services needed by small businesses makes third-party nonbanks more attractive,” Augustine said.
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