Payment processing overview and challenges
If you are running a business, either offline or online, you must have had to deal with payment processing. What used to be simple, in a nutshell, cash payments versus check payments, is becoming extremely complex with new technologies, new regulations and a flurry of new players.
To understand the complexity, we can segment some of the drivers of diversity as follows:
- Apps based
- Via Browser
- RFID, NFC (Near Field Communication)
- WiFi, Zigbee, Z-Wave
- LiFi, Ultrasonic, Chripcast
- Debit cards, Credit cards
- Digital wallet
- Mobile payments
- Electronic bank transfers
- Fiat currency
- Tokens, coupons, miles, loyalty rewards
- American Express
- CB (Carte Blue)
- Merchants' card
Regulation and compliance
- PCI DSS
- PSD 1, PSD 2
- GDPR, CCPA, Data Privacy Protection
- Cash oriented (Germany)
- Check oriented culture (France)
- Credit, debit card (Spain)
- New technologies (South Korea)
Top Payment Gateway Providers
As a result, payment method fragmentation varies strongly by geography. While some payment methods, such as major credit card brands, have become internationally available, others have remained confined to a single country. For example, in the Netherlands, 55% of online payments are made via iDEAL, and in Germany 40% of purchases are bank-based.
Given the complexity, as a Merchant, especially if you are online and reaching out for a global audience, you have probably focused on two dimensions, 1) the coverage of your solution and 2) the payment processing cost.
The goods news if you are a Merchant is that some PSP (Payment Service Providers) offer solutions to accept payments everywhere and meet all aspects of compliance (or claim to do so).
The bad news is that they are expensive and opaque. Furthermore, they will not allow you to leverage one of your key assets: your payment processing data.
2- Payment processing cost
If you have dealt with payment gateway service providers, you shall know that there are two families of fees, 1) per transaction fees and 2) volume-based fees. PSP can be creative in their pricing strategy and you might get discounts based on the idiosyncrasies of your business, e.g. a large number of small transactions vs. a small number of large transactions. If you are alike most other Merchants, you have probably looked for a PSP to optimise your cost based on those two parameters and your forecasted consumption, but disregarded other less traditional methods that require a little bit more of out-of-the-box thinking and internal knowledge on how payments are processed.
How can you monetise your payments?
The first step is to consider your payments as an asset instead of a liability; or a compliance expense. Payment processors have access to Personally Identifiable Information (PII), and in the Marketing and Financial Risk Management spheres, PII is worth gold. But there is a catch. PII is protected by data privacy laws and infringing them can result in having to pay huge fines, e.g. Google €50 Million Fine. So you can duck your head and pass, or carry on reading.
Leveraging payment data
Here is the trick. Whoever owns the transaction can ask the user for an opt-in. If the user agrees, it is then legal to use his PII for up-selling and cross-selling purposes. You may say that this is not groundbreaking news and you are right. Who has never received promotional messages from his favourite shopping centre after agreeing, sometimes unconsciously, to receiving marketing materials?
But let's take this one step further. What if you teamed up with third-parties to leverage, no only your internal data, but also external data?
How much more efficient would your next marketing campaign be? e.g. How much would an automotive dealership's workshop manager pay to know that someone has just bought a car? A car insurer?
Now beware! Your clients agreed to share their PII with you, not with third-parties. Lucky you! We know a workaround.
Reduce payment processing cost
Based on the two families of fees, there are broadly speaking two ways to reduce payment processing cost:
- to reduce the number of transactions and,
- to reduce the volume processing fees
Reduce the number of transactions
Let's imagine that your customer is making three payments a day, one to pay for his meal, another one to buy a drink from your vending machine and the third one to buy a candy from the store. If instead of processing 3 payments just in time, you would pool the payments and push one bundled transaction at the end of the day, you would divide your transaction cost by 3. If you don't get it, go to EasyMath.
Easy no? But that is not going to work with you because your customers are unlikely to pay you several times per day. To make it work, you need to bundle your customer's payment transactions with others, and for that, you will need to use a Payment Platform. The good news is that we know of one up-and-running.
Reduce processing fees
The payment processing world is controlled by Visa, MasterCard and American Express. If your customer pays with one of those cards, the clearing and settlement have got to use their rails. And when you use VMAmex rails, you have to pay interchange fees, and fees are governed by their preset interchange rates. So, how can you reduce processing fees? The answer is that you cannot... unless you process the transaction, or part of the transaction, outside of their rails to secure a better rate.
You may ask, how can I secure a better rate? The answer is that the rate depends on the level of risk perceived by the card networks. Reduce the risk and you will get a cheaper rate.
You may ask then, how can I reduce the risk? But you will not get the answer in a freebie post.
You may also be intereted in our article on Strategy vs. Strategic Planning