1 in 6 Main Street SMB Retailers Are Considering Switching Payment Processors

The competition in the payment processor market is fierce because of the success of incumbent leaders, as the majority of Main Street small to midsized business (SMB) retailers are satisfied with their current processors. However, there are opportunities to make a mark with lower transaction fees and differentiated services.

These are some of the conclusions drawn from “Main Street Health Q3 2023,” a PYMNTS Intelligence and Enigma collaboration based on a survey of 509 SMBs with brick-and-mortar shops in commercial districts across the United States. It reveals the latest on how business owners are reshaping their economic forecasts for the next 12 months.

Main Street SMBs work with a range of payment processors, but it is a highly competitive and consolidated market dominated by two players: PayPal and Square, which together hold 85% of the market share. Smaller and newer competitors share the remaining portion of the pie, but these upstarts are most vulnerable to switching.

The loyalty of customers to the two leaders makes the sector a challenging battleground for acquiring new customers. Although it might initially appear that the payment processor market is consolidated and static, the competitive landscape could change in the coming years as 15% of Main Street SMBs express a willingness to switch providers in the next three years.

Considering Alternatives

When considering a switch, the most relevant factor is transaction fees, which impact 59% of Main Street SMBs. These results open the door for players to acquire new customers if they can offer more aggressive pricing policies and ensure quality service.

Hospitality and consumer service businesses are the most open to switching providers, making these sectors the next battleground for those players seeking new segments to expand.

But price is not everything. Main Street SMB clients also value other features when choosing a payment processor. For example, 54% look at fraud detection and prevention, and construction players and retailers that have been in business for less than five years are the most interested in such features.

In addition to this, 53% seek processors that provide credit services. Meanwhile, more than 70% of consumer services Main Street SMBs are looking for processors that offer multiple payment options. According to these needs, offering improved services in these areas can be a differentiator in capturing new customers, especially for SMBs with limited budgets that could benefit from complementary services, one of the features that are most important for Main Street SMBs.

Although the payment processor market is dominated by giants like PayPal and Square, and most Main Street SMBs express satisfaction with their current providers, lower transaction fees and specialized credit services present opportunities for entrants. As the landscape evolves, focusing on these aspects can be a game-changer for providers looking to tap into new segments, particularly for SMBs with limited budgets.