Limitations of Traditional Payment Processors
With all the buzz around payments, it’s no surprise to see the industry undergoing another round of consolidation, or to hear of yet another challenger jumping into the fray. What is surprising, however, is that the industry as a whole has not done enough to advance its capabilities to match fast enough savvy buyers’ requirements.
Even among the largest global payment providers, a gap exists when it comes to providing a business with what it needs to grow and expand into new markets and sales channels, clear the latest (and not so latest) regulatory hurdle and experiment with emerging pricing and revenue models. As a result, many SaaS and software companies are quickly maxing out their markets and finding it increasingly difficult to sustain a solid rate of revenue growth. What’s the solution? They need to better understand the intersection between payments, commerce and distribution.
Here are a few steps to get you started on your way and understand which are the areas and the capabilities you need to look at.
Going Global & Going Local
Technology may be making the world smaller, but cultural preferences remain. Connecting with global buyers requires a tailored approach that treats each market as a separate and distinct entity. To give buyers the familiar experience they’re looking for, you’ll need to localize each aspect of the buying experience, which includes everything from the payment method, currency, prices, text, labels and messages to date and time, phone number, graphics, formatting, punctuation and addresses.
“Customers are 70% more likely to purchase if the shopping cart is displayed in their native language and their preferred payment method is listed as an option.”
Having the choice of a preferred payment method can be the deciding factor for a buyer, and so the ability to offer the preferred payment – whether that’s credit cards in the US, PayPal or SEPA Direct Debit in Germany, Boleto Bancario in Brazil or Konbini in Japan – can mean the difference between success and failure for each market you enter.
Here’s a teaser on insights by countries:
- United States
The country of credit cards: 48% of US shoppers use credit cards for online shopping, 30% use debit cards and 12% pay via PayPal.
Cards and PayPal are the most used payment methods in Germany, with 26% and 20% of transactions, respectively.
SEPA Direct Debit and SOFORT Überweisung are also popular, amounting to around 20% of the transactions.
Over two thirds of Brazilian shoppers pay via credit/debit cards, followed by Boleto Bancario. Out of the total number of credit and debit card payments made in Brazil, more than two thirds are made using local cards that offer installments, such as local VISA, MasterCard, ELO, HiperCard and American Express.
Can your provider respond to new market opportunities – for e.g. in Brazil, China, Russia?
Payment Model Flexibility
One thing is the payment methods you are going to make available to your end customers, and another is how. Make sure you understand the business model you are signing up for – do you require a merchant account for each country you are selling into, or will your processor cover that requirement?
Bear in mind that merchant accounts are based on credit worthiness and other risk criteria, which means not everyone will be approved. Additionally, securing a merchant account – especially in multiple locales – means lots of paperwork, multiple risk evaluations, and months of delayed time to market. Understand if you have flexibility over the business model by country or region, depending on your goals – you may want to be the merchant of record in your key markets, but do not want to worry about payment processing and all that it entails in the rest of the world.
Can your provider offer payment model flexibility, at least for the key markets you are targeting?
With growth comes complexity and the need to scale smartly to meet increasing operational and customer demands. You can scale payments to keep up with demand, but if you leave out commerce – which most processors don’t even consider – you’re most likely going to leave behind other essential business functions like marketing, back-office operations, including order management, distribution and customer support.
But even scaling payments alone can have its challenges. Expanding globally typically means having to contract with a different processor for each market you enter (or even more per each market), which isn’t a scalable model for most online businesses. What is scalable is the use of API to aggregate payments across processors. This eliminates the need to sign individual contracts on the business side, and enables you to leverage a single connection on the technical side. Or at least a few connections only, if we are to go back to the payment model flexibility argument.
As a general rule, if you are a start-up or an SMB, or even a business unit within a large enterprise-level company, you will want to scale quickly without investing upfront and utilizing additional resources, so outsourcing payment processing will be the answer for you.
“If you want to scale quickly without investing upfront and utilizing additional resources, outsourcing payment processing will be the answer for you”.
Time to Market
If you need to manage contracts, develop APIs necessary to integrate multiple payment processors, to staff and train your people to ensure ongoing maintenance, the final consequence is lost time. The effect of all this time spent to shore up payments, paradoxically, is the loss of the core business focus and momentum that put you in the position to expand payments in the first place. With an all-in-one eCommerce platform you can get started in days or weeks, not months, while optimizing revenues, simplifying and scaling operations, and reducing your commerce costs.
“Get started in days or weeks, not months.”
Optimizing authorization rates may seem exotic. “Do I even have access to this kind of information?” You should. Track authorization rates and get insights into how authorizations are managed, or what tools, if any, are utilized to increase authorization rates.
Similar to conversion rates, authorization rates vary depending on the type transactions (cross-border vs. local, new acquisition vs. renewal), region, currencies and other elements such as card type – debit/credit/prepaid.
A good authorization rate is above 85%
A good authorization rate is above 85%, including all the variables mentioned.
Payment providers charge for access to their platform, the gateway, and their payment methods. They make money irrespective of whether your transaction is successful, so you need to take care of your conversion rates.
Conversion rates depend on many things and they vary by target market, segments, industry, average order value, region, country, desktop vs. mobile, and so on. An average rate above 30% is considered to be a good one in the B2C software world (above 40% you’re doing great), with rates even over 50% for SaaS and B2B.
Conversion rates above 30%, 40% for software sales, 50% for SaaS? You’re probably on the right track, but see what you can still improve.
But there’s always some room for improvement. So ask yourself the question “What’s killing your conversion rates?” A complicated purchase funnel? Unclear product or pricing pages, shopping cart abandonment due to displaying too few payment methods? There are a number of factors that can keep your visitors or leads from converting, and it’s obvious that it’s not just payments.
By pinpointing and optimizing those areas, you can dramatically, and often quickly, improve your conversion rates throughout your buyer journey. It’s easier to optimize than to acquire new traffic.