By Rich Toomey – Managing Partner | PayNimble
The Story of 11 through 300
Many banks in America are missing a competitive payments offering. And their rate of deposit growth shows it.
The headline numbers everyone focuses on are from the giants. The top 10 banks in the U.S. control the vast majority of the country's banking assets. But that isn't what this story is about.
Instead, this is a tale of what happens at bank number 11 through 300 — the regional banks with scale, the super-community banks, and the growth-oriented local institutions aggressively expanding their commercial portfolios and working to move up-market. In the world of payment processing, this is the tier where a real gap exists and goes unnoticed.
The Big and Small of It
Banks in the U.S. are commonly segmented by total assets:
Mega banks (Top 4–5): $500B+ in assets. JPMorgan, Bank of America, Wells Fargo, Citi. They have the infrastructure, capital markets divisions, and dedicated merchant acquiring businesses.
Large regional banks (roughly $50B–$500B): U.S. Bancorp, Truist, PNC, Regions, KeyBank, Huntington. They have merchant services programs, often through major processor partnerships or legacy joint ventures.
Mid-tier regional banks ($10B–$50B): This is where the story gets interesting. These institutions are large enough to have treasury management departments, commercial lending teams, and ambitions to win business banking relationships with companies in the $50M–$200M+ revenue range. But their payments infrastructure is insufficient and the internal team entirely lacks the expertise required.
Community and super-community banks ($1B–$10B): There are hundreds of them. They often serve the commercial market in their geography, have real relationships, trusted bankers, and strong local brand equity — but payments is almost always an afterthought.
Smaller community banks and credit unions (under $1B): The vast majority by count. Many are focused on consumer and small business. Merchant services, if offered at all, is a check-the-box product.
The Consolidation Paradox
The payment processing industry has undergone historic consolidation, while the banking sector beneath the mega-bank tier has remained relatively decentralized and community-rooted.
On the payments side, the concentration is staggering. A handful of legacy platforms and massive fintechs now control an estimated 85% of the payment processing market. Meanwhile, on the banking side, thousands of individual institutions — each with their own commercial customers, deposit relationships, and loan portfolios — are serving the exact businesses that the mega-processors have swept up on the payments side.
The banks didn't lose this business because they lacked the customers. They lost it because they ceded the ground — and in some cases, even sponsored the very companies that displaced them.
It's All the Same in the Middle
Through decades of M&A and consolidation, merchant acquiring in the U.S. funneled into a small number of scale processors. Banks — especially mid-size and community banks — increasingly acted as referral points rather than active participants. Talk to the principals at any of these banks and you hear the same story, over and over:
Me-too product commoditization. The typical bank-affiliated merchant services offering today is a narrow product set — a terminal, a basic gateway, a tiered or flat-rate pricing structure. It doesn't address the myriad use cases that business customers have. Forget integrated software environments, multi-channel collections, complex reconciliation needs, cardholder fee options, ACH/eCheck, or any broader cash management discussion.
The bank's own team doesn't understand what they're offering. When a commercial banker calls on a business owner, they can talk credit, treasury management basics, and deposit accounts. The moment a payments conversation arises, the banker hasn't been trained to diagnose the customer's use case — and accordingly, the opportunity to deliver value is dead before it starts.
The third-party hand-off doesn't work either. When banks do outsource to a processor partner or ISO, the third party's performance rarely aligns with the bank's relationship priorities. The concept of a “joint calling effort” — where the bank relationship manager and the payments specialist co-consult and co-present — is virtually nonexistent. Follow-up, if any, is poor. Post-sale service is even worse.
Nobody ends up happy. Because the merchant services product is a box-check rather than a true relationship offering, it generates minimal non-interest income for the bank, minimal revenue share, and — most critically — it fails to achieve the real strategic objective: capturing and deepening the deposit and treasury relationship.
The Fintech Advantage That Isn't
The major fintechs won small businesses and even middle-market customers on the promise of simplicity: a flat rate of 2.6–3.4% per transaction, no confusing interchange categories and no complicated monthly statements.
But here's what most business owners still don't know: flat-rate pricing is deliberately set high enough to cover the most expensive card types — meaning every debit card transaction and every standard credit card swipe is quietly subsidizing the cost of premium rewards and business cards. The fintech pockets the difference. Interchange-plus pricing — the transparent alternative where merchants pay the actual network cost plus a clear markup — typically saves businesses 20–40% once they reach any meaningful transaction volume. For a $50M–$200M business, that difference is material.
And beyond pricing, what the giant fintechs never delivered was service. There are no dedicated relationship managers or people who truly understand a customer's business. And if something goes wrong, finding someone to talk to is no easy chore. And to be clear, that is not a mistake or misstep. It's a business model spun as “technology first” and “self-serve.” But it's also a strategic opening for the financial institutions willing to step into the void with the right partner and the right approach.
Merchant Services Equals Deposit Growth
The empirical evidence should be the motivating business case for every regional and super-community bank commercial leader reading this. Research by TSG (The Strawhecker Group), confirmed by industry data, reveals:
• Merchant service customers maintain DDA (demand deposit account) balances that are, on average, 11% higher than non-merchant service customers.
• Financial institutions that deliver merchant services effectively experience 10% to 50% increases in customer account balances across their business client portfolio.
• Merchant service customers are approximately 10% longer-term relationships — lower attrition, lower cost to retain, and more lifetime value per customer.
• Academic research from the Review of Financial Studies confirms that a bank is 20 percentage points more likely to cross-sell a loan to an existing deposit customer than to a comparable business without that banking relationship.
The logic is plain: a business that processes its payments through its bank also settles its funds directly into that bank account. That means operating cash flow, float, and reserve balances — all flowing through the bank's deposit base rather than through Stripe's or Square's master merchant account. The bank also gains real-time visibility into the customer's revenue patterns, which feeds underwriting, cash management conversations, and line of credit discussions.
Payments is not a product. It is a relationship anchor. And the banks that treat it as such will win the commercial deposit war. The ones that treat it as a revenue-share checkbox will continue to watch fintechs capture their customers' operating accounts.
A Sales Gap in a Technical Business
Simply put, payments is a highly technical, rapidly evolving business, and most regional and community banks do not have the sales expertise — internally or through their partners — to win customers and drive balances with it.
This is not a technology problem. The technology to deliver sophisticated payment acceptance to a middle-market business is there. This is a distribution, expertise, and partnership alignment problem.
The Window Is Open Now
The banking landscape is still consolidating. FDIC data shows the number of U.S. banks declining by roughly 100–120 institutions per year. As smaller banks merge into mid-tier regionals, and mid-tier regionals expand their commercial ambitions, there is a window — right now — where a differentiated payments approach is a genuine competitive differentiator in commercial banking.
The mega-fintechs are dominating the small business market and will for the foreseeable future. But much of the middle market is still largely in play.
The regional and community banks that recognize payments as a deposit growth strategy — and that partner with the right enterprise-grade provider to deliver it — have a real opportunity to win meaningful new share of the commercial banking market. The ones that don't will continue writing small residual checks to their third-party payments partner while their competitors capture the balances.
Rich Toomey is Managing Partner at PayNimble, a payment solutions provider helping organizations collect efficiently, manage costs, and eliminate risk. Connect on LinkedIn or visit paynimble.com.