Many merchants choose a single payment service provider (PSP) and then find themselves at a disadvantage against their competitors if they can’t dynamically change to keep up with changing customer preferences, e.g. supporting new alternate payment methods.
Merchants of all shapes and sizes have a common requirement; they all need to be able to accept payment for their products and services 24 x 7, and to accept all the payment methods their customers prefer to use. Ideally, the cost of doing this should be as low as possible.
On the face of it, this may appear simple to achieve, but is it really?
Most small and start-up e-commerce merchants begin their commercial life without a Merchant Account at a bank, usually because they don’t have the scale or the history to qualify for one. They select a PSP that does not require a Merchant Account such as PayPal, BUT they often pay higher per-transaction fees as a result.
Later the merchant grows and signs up with an Acquirer to get access to lower Merchant Service Fees that help to boost the bottom line – but the merchant does not want to lose all its existing PayPal customers so now has to deal with both PayPal and the Acquirer from both the technology and the administrative aspects.
Now the merchant decides to launch its online presence into the UK market. It now needs to accept payments in UK Pounds and the range of popular UK payment methods. It establishes a relationship with a UK Acquirer and now has 3 payment technology and administration platforms to support.
You can see where this story is heading; over time as new payment methods enter the market and the merchant expands into the USA (think Discover) and China (think Alipay, UnionPay), the time and cost of supporting a plethora of back-end payment platforms begins to increase and can become a factor that actually places limits upon the growth rate and profitability of the business.
Merchants need to focus their time and energy on improving the customer offer, fine-tuning logistics and delivery, updating the website, social media feeds, store layouts, working with key suppliers and resolving any product cost and quality issues. Not spend hours dealing with “payments stuff”.
What if there was a way to integrate the merchant’s operations with a single service provider who delivers access to a large number of payment service providers from which the merchant can pick and choose?
Australian start-up PayDock has committed itself to elegantly solving this problem by effectively becoming an integration layer between the merchant (with a single integration) and multiple PSPs. Rob Lincolne is the Founder and CEO of PayDock and offers some insights from his experience working in this space:
"Usually when I ask a CTO ‘how do you like working with payment gateways,’ the next three words are 'I hate it'."
"We've discovered that one of the largest headaches for merchants is keeping the bottom line maximised while working with multiple payment services – this is especially true as while so many payment services offer the same product 'on the box', the execution is often highly varied and may not suit actual merchant needs. Merchants need to be able to 'hold on' to their customers without getting locked into singular solutions."
Rob Lincolne has made the observation that some of the most popular PSPs used by e-commerce merchants today include:
- Stripe, no merchant account required and developer friendly
- PayPal, no merchant account required and a large user base
- eWay, local payment gateway
- AfterPay, for “buy now, pay later” offers and increased revenue to the merchant
- Pin Payments, no merchant account required, Australian company, very flexible
6 Reasons to use Multiple PSPs
- Take payments from different countries.
- Accept different currencies.
- Comply with overseas payments and tax regulations.
- Accept locally popular payment methods.
- Different providers charge a range of prices for specific payment methods and transaction types.
- With 2 or 3 providers the merchant can choose the lowest cost provider for each customer payment – known as ‘Least Cost Routing’.
- This can add a lot of money to the bottom line.
- If the merchant has only 1 PSP then there is a risk of becoming ‘locked in’ with a potentially high cost to change providers (or add another) later.
- In this situation there is a possibility that the incumbent provider may gradually increase transaction fees over time until the merchant feels some real pain on their margins.
- Having at least 2 PSPs mitigates this risk and is likely to keep fees lower over time.
- What happens when a PSP has an event and goes down for a period of time or loses an upstream link to one of the schemes?
- A merchant may not be able to process some or all customer payments without having the option to switch to a second gateway.
- Disaster planning is an important element of securing the revenue stream of the business.
- A merchant may lose sales if it does not accept the preferred payment method of the customer.
- This is one of the reasons for the problem of Cart Abandonment.
- It may be necessary to work with multiple PSPs to be able to accept all the payment types customers wish to use.
- A consistent customer offer across both online and ‘bricks & mortar’ stores can be difficult to achieve in practice.
- For example, placing an item on Layby online, and paying off the balance in-store should be possible using the same payment method.
- Alternatively, buying an item online and returning to a store for a refund, should also be possible using the same payment method.
- It may be necessary to use more than 1 PSP in order to consistently accept a set of payment methods both online and in-store.
Finding a PSP just got easier
Finding a PSP that can meet your requirements is often difficult. With the recent launch of the Merchant Pricing Hub, it is now MUCH easier to compare the features, functionality and pricing of different PSPs. In the past, this has been a time-consuming task, having to search through many online sites to get a reasonable basis for comparison. Now, it is all available at one location.
If you found some of the key terms (capitalised words) used in this article confusing, please refer to the glossary.
Author: Robert Roylance, Associate, Payments Consulting Network, Sydney
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