The reason acquirers don’t get more merchant referrals is due to three reasons: a sense of entitlement, an uneducated merchant base, and a lack of a referral system.

Our industry has a very low rate of merchant referrals. A quick study suggests that 0.08% of merchants refer to their current provider in spite of monetary offers.

The issue goes back to three issues: entitlement, an uneducated/unmotivated merchant base and a lack of a deliberate referral system.

Acquirers’ Sense of Entitlement

Most businesses unwittingly have a sense of entitlement when it comes to getting referrals from their customers. Unfortunately, ISOs and acquirers don’t escape that reality. Most ISOs and acquirers operate from the position that merchants should and ought to refer to them.

This sense of entitlement comes from a blind spot: ISOs and acquirers are so focused on their performance that they sometimes forget that merchants are just humans after all. As such, they are driven by motivators.

This unwitting sense of entitlement exists because ISOs and acquirers:

1. Feel that they do a good job with their core deliverable.
2. Believe they provide good customer service
3. Think that they act with integrity

These three reasons alone lead ISOs and acquirers to expect merchants to shower with them with a bountiful torrent of referrals as a way to show their appreciation. Added to these three reasons are two others that are not negligible:

1. Cultural reasons that lead to not asking for merchant referrals: not part of the company’s culture, for sales people and customer service, it can be ego, the desire of not wanting to appear “salesy”, pushy, or greedy.
2. Not being aware or underestimating the effort and knowledge it takes to create a deliberate and predictable merchant referrals program.

 

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The Psychological Undervalue of Referrals

Added to these issues, I have noticed in the industry a very strange phenomenon: the undervalue of referred accounts.

Most ISOs and acquirers balk at the idea of spending as much money to get a referral as they do to get a new merchant cold of the street.

I believe that comes from that sense of entitlement and the feeling that they have “earned” the referral like we have seen above. But it also comes from a sense that somehow a referral is worth less than a new merchant.

This is because we are victim of a counter-intuitive psychological phenomena related to how we value things: we tend to value things that take significant efforts to get and not place a lot of value on things that come easy to us. And a merchant that comes cold from the street is a reward to all of our sales and marketing efforts. The reward system in our mind is triggered when we get that new merchant way more than when we get a referral.

The reality is that the referred merchants should also be viewed as a reward to how well of a job we do internally in satisfying merchants and in educating them to refer and rewarding them adequately so that they do so more often.

The Best Merchants Are Those Coming From Referrals

The biggest change happens when we realize that we should spend as much money on a referral as we spend on getting a new merchant cold. Especially that studies show that the best and most lasting customers are those that come by way of referrals. However, because of the entitlement attitude, ISOs and acquirers are unwilling to spend money to reward referrals adequately and expect referrals to be free or nearly free.

I know market players that spend up to $1200 to get a new merchant cold but would have all kinds of resistance paying $800 to generate a new customer from a referral, although they just saved 33% of their average spend to get a new merchant.

A Much Required Attitudinal Change To Merchant Referrals

A new customer is a new customer and ISOs and acquirers should be willing to pay as much as it costs them to acquire a new customer cold. Once this change happens, they can start thinking of new ways of acquiring new merchants fast and getting that much-needed retention factor both from the merchant that refers and the merchant referred.

Unless and until ISOs and acquirers realize that referrals are earned and not to be expected and they put together a deliberate system that would take advantage of merchants’ motivators, they will keep banging their heads against a wall of incomprehension.

In the next installments, we will explore why merchants don’t refer and what motivates merchants to refer and how to build a deliberate and reliable referral system.