Community banks and credit unions face growing competition from fintech platforms that move faster, market aggressively, and quietly expand into traditional banking territory. What often begins as a simple payment solution can quickly turn into competition for deposits, loans, and long-term customer relationships. Many institutions still underestimate how quickly this shift is happening, and that delay creates real risk.
On this episode of Banking on Growth, our host Mike Graham, CEO of Midwestern Securities, is joined by Nellie Schlachter, Director of Strategic Partnerships at Evolv. With more than a decade of experience in bank management, Nellie brings a clear, insider perspective on how payment providers are evolving into full-service banks and why community institutions can no longer treat merchant services as secondary.
In This Episode
- Why merchant services have shifted from a support function to a frontline defense for community banks.
- How platforms like Square use payment processing as the entry point to deposits, lending, and full banking relationships.
- What makes Square attractive to business owners, and why speed and convenience often win early loyalty.
- How community banks can identify customers already processing with Square using existing ACH data.
- What a truly robust merchant services program looks like, including ownership, accountability, and intentional outreach.
How Merchant Services Became the Front Door to Banking
Merchant services were once viewed as a supporting function rather than a strategic priority. Businesses needed a way to accept payments, and banks offered solutions mainly to round out their service offerings. That mindset no longer holds. Payments now sit at the center of a business’s daily cash flow, making merchant services a natural entry point for deeper financial control.
Platforms like Square recognized this early. By removing friction from payment acceptance, they embedded themselves directly into how businesses operate. Once a merchant begins processing payments through a platform like Square, the door opens for deposits, savings products, and lending offers to follow.
Why Speed and Convenience Win Early Loyalty
Square’s appeal to business owners starts with simplicity. Merchants can sign up quickly without underwriting, credit pulls, or traditional compliance steps. That ease of entry feels attractive, especially to small businesses that value speed over paperwork.
Beyond onboarding, Square structures its banking products around immediacy. Funds from transactions can become available almost instantly, loans can be offered without lengthy applications, and repayment adjusts automatically based on sales volume. For many business owners, the experience feels modern, flexible, and aligned with how they already run their business.
The Risk Community Banks Often Miss
The real risk is not losing a merchant services account alone. The greater threat lies in what follows. Once a business processes payments through Square, that platform actively pursues the rest of the relationship, including checking accounts, savings, and lending.
Many community financial institutions do not actively track which customers are processing with Square, even though that information exists in their ACH data. Without visibility, these institutions lose the opportunity to intervene early and protect the broader relationship before deposits and loans begin to move.
What a Truly Robust Merchant Services Program Looks Like
A strong merchant services program starts with leadership commitment. When executives treat merchant services as both a revenue opportunity and a defensive strategy, the program gains traction across the organization. Ownership matters. Someone must be responsible for overseeing performance, growth, and coordination with the merchant services provider.
Robust programs also rely on accountability. Banks with the strongest results set referral expectations, track activity, and tie performance to measurable goals. When merchant services appear on scorecards instead of sitting in the background, conversations with business customers happen more consistently.
Turning Merchant Services Into Relationship Growth
Merchant services conversations create natural opportunities for broader engagement. A discussion about payments can lead to conversations about credit lines, property ownership, retirement plans, employee benefits, and cash management. These joint conversations allow banks to deepen relationships instead of competing on price alone.
By approaching merchant services collaboratively, banks position themselves as long-term partners rather than transactional providers. That relationship depth remains one of the most meaningful advantages community banks still hold.
Using Data to Play Smarter Defense
One of the most practical takeaways from the episode focused on using foreign ACH receiver reports to identify customers processing with Square. That data gives banks a clear list of at-risk relationships and a starting point for proactive outreach.
The objective is not to criticize competitors, but to reintroduce the bank’s value. When banks engage merchants with education, live support, and integrated solutions, many business owners are open to alternatives that keep their financial relationships under one roof.
Awareness Is the First Competitive Advantage
The competitive landscape in banking continues to blur. Payment platforms offer banking products, wealth firms offer cash management, and fintech players move quickly into adjacent services. Community banks cannot afford to underestimate these shifts.
On this episode, the message is clear. Merchant services are no longer peripheral. Banks that understand the risk, use their data intentionally, and invest in stronger programs put themselves in a far better positio to protect deposits, grow relationships, and stay competitive as the industry continues to evolve.
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