How payments companies can use transaction data to support small merchants

What if?

I used to get lunch from a small café near my old office, and I would get the same sandwich every time I was there. Eventually, the staff behind the counter would recognize me when I got in line. With a subtle nod of confirmation, they’d start making and toasting my sandwich so it was ready by the time I reached the cashier to place my order. It was a good sandwich, but I loved the service and went there far more often because of it.

Of course, having staff remember every customer isn’t a scalable strategy for a merchant to win more business. But what if small businesses, in general, had an automated way of identifying not just me, but every customer when they walked in and analyzed their preferences over time? What if businesses could easily act on that information and offer personalized experiences to earn customers’ loyalty?

In the case of my favorite lunch café, they might try to tempt me with a discounted cookie or increase their chicken supply if they saw more people copying my order. Imagine also, when I changed offices and needed a new place to get lunch, if a new nearby café who wanted to target people like me–creatures of habit who like chicken sandwiches–could send me an offer through my credit card issuer? All of this could be powered by my transaction data. While large merchants like McDonald’s and Amazon have the resources to personalize my experience based on analysis of my activities and preferences, this is out of reach for the many small merchants fighting for the slightest edge to grow.

Data: A valuable, largely untapped payments provider resource

Banks and processors are in a unique position to help small businesses improve their operations and customer experience by analyzing large volumes of payments data and acting on data-driven insights. While we are at the dawn of using transaction data in value-added merchant services–only 9% of major banks monetize transaction data as of 2020–the need, and the value at stake, for payment providers to support their merchant customers has never been higher.

 For most merchants, payments processing is a necessary cost of doing business, not a value-add or differentiated service. As competition and interchange regulations in many markets limit the transaction fees providers can charge to merchants, payments service providers will need to do more for their customers to remain competitive and create new revenue streams.

According to Boston Consulting Group, small- and medium-sized businesses make up 76% of merchant acquirer revenue globally, which means there are billions of reasons for payments companies to evolve. In fact, Bain & Company estimates that value-added merchant services–which include analytics; alternative payment acceptance; omnichannel support; loyalty; and industry-specific use cases–will increase their share of an acquirer’s profit pool, from 20% to between 50%-80% in 10 years. This is a potentially powerful growth driver for payments companies, as institutions that create more value for merchants tend to receive more value in return. Worldpay estimates that merchant-services programs increase lifetime revenue from a merchant by up to 40%.

Data visualization: Helpful, but limited

Data can’t provide insights if no one understands them. Similarly, insights don’t create value if you don’t know how to act on them. Today, many service providers offer dashboards to help merchants visualize sales data and stay on top of payment operations. Information like busiest days and hours, most popular products, repeat customer rates, and average order value offer insights that may help merchants identify problems and opportunities, like increasing staff on busy days or increasing the supply of popular products.

However, according to Gartner, over 87% of organizations have low analytics maturity and business intelligence. Many small businesses lack the time, resources, and expertise to fully exploit data by identifying and querying what is relevant, interpreting those charts and reports, and deciding on a course of action. It’s one thing to know that 10% of your customers give you 70% of your business, it’s another to decide what to do about it. As a shopkeeper, should you: Invest in a loyalty program or change your marketing? Offer some sort of alternative financing? Seek ways to find more customers who are like your top 10%? Though interesting and thought-provoking, the data lack context and direction for business owners to translate them into decisions.

From passive insights to proactive partner

To be an ally to small businesses, payments providers have an opportunity to leverage their data assets to bridge the gap between insight and action. They can do this by guiding businesses to interpret their analytics and apply insights to make data-driven decisions, providing them with tools to act on those choices, and offering access and resources to target new customers and markets.

“Help me make better decisions, faster”

Payments companies can provide merchants with data-driven recommendations to improve their services and operations. Upserve, a mobile point of sale and management platform for restaurants, uses Amazon Machine Learning to help dining establishments predict how many customers they will see in a given night and which menu items will be popular. The company also uses customer transaction data to pair servers with guests who have tipped well in the past and flag “best customer” profiles to identify which guests should get extra attention.

“Help me take action”

To help vendors activate their choices, payments companies can help merchants to automate key decisions and tasks, based on data. Upserve, for example, offers a loyalty program linked to a customer’s credit card that automates reward crediting, reducing the administrative burden on restaurants and servers. Emirates NBD is using Amazon ML services, including Amazon Personalize and Amazon SageMaker, to predict its customers’ needs and automatically personalize their experiences. Emirates NBD also uses an automated call center, powered by natural language processing with Amazon Comprehend and Amazon Polly, to help customers interact with an automated support service in a more natural way. Fraud.net leverages AWS to aggregate and analyze fraud data from thousands of online merchants and prevent fraudulent transactions in real time.

“Help me get to the next level”

Transaction data, when aggregated with additional data points, can also unlock growth opportunities for small businesses that wouldn’t have been available otherwise. Small- and medium-sized businesses worldwide experience less access to external finance, and when they do have access they face higher transaction costs and risk premiums. As a result, according to the World Bank Group, almost 70% of these businesses do not use external financing from financial institutions. To better assess risk and extend financing to merchants, payments companies need to draw upon large datasets from multiple sources. Such use cases are emerging in the personal credit market. Lenndo, for example, uses Amazon DynamoDB to analyze over 12,000 data points to help businesses predict creditworthiness of potential customers in the Philippines. In the US, Affirm uses Amazon Kinesis to offer an entirely new lending experience by making loan underwriting decisions in seconds at the point of sale.

Banks, in particular, should also consider ways to enhance their customer relationships by connecting potential buyers to relevant merchants and services. For instance, Monzo’s API allows its customers to access third-party services through the Monzo platform. Some banks and fintechs are also starting to use in-app transaction records and digital receipts to deliver personalized merchant offers to customers – powering loyalty programs and creating new acquisition channels.

Conclusion

As consumers gravitate to digital, multi-channel commerce experiences, merchants need to respond and digitize quickly. Smaller merchants, in particular, will find this challenging, due to lack of time, resources, and knowledge. But payments companies have both the data assets and the opportunity to help small businesses overcome these hurdles. To truly realize the value of transaction data and create new revenue streams, payments companies should explore going beyond insights to help small business confidently make decisions, automatically take action, and access growth opportunities.

Doing so will require payments providers to invest in new capabilities and processes to aggregate and store data from multiple sources, analyze data and make decisions in real time, and automate or simplify as many actions as possible to make life easier for small business owners. For more information about how to work with AWS and leverage transaction data to enhance your merchant value propositions, please contact your AWS Account Manager or visit AWS Financial Services – Payments.