Recession, global competition, busy consumers, fraud, investors seeking to reduce costs. Not since the early faltering steps of ecommerce has there been so much pressure to show tangible results and realise every last ounce of value. Every business with a sales presence online is aware of the old favourites, context and content, being king. In tight economic times, cash and conversion are also regal in their importance. For those already operating online shops, are there ways to focus on greater efficiency? For those looking to get into the market, what are the payment options available and what needs to be considered?
Much has changed in the past five years. More providers and better solutions are available now. However, broadly there are still two main ways to take payments on your site using commonly available solutions. The first and most readily seen globally is of course credit and debit card payments being processed either through a direct connection to a banking partner (usually preferred for large-scale complex uses) or via a payment gateway (which can usually help with everything from small- to large-scale use).
The second way to take cash involves third-party payment services like Amazon Flexible Payments, Google Checkout and PayPal. Let’s consider the costs, questions you might want to consider, some of the differences and some examples of where they may be relevant to your business.
While looking at the two different sorts of service and how they compare, it’s worth having an open mind rather than picking an outright winner. A mix of more than one service is the ideal solution for almost all medium and large retailers. Those already using a service could potentially benefit from supplementing a gateway with a service like PayPal; those using just PayPal could find their credit and debit card conversions rise when using a gateway. Given that there’s always a risk of outages affecting a service, even for large gateways like Authorize.net, now’s the time to consider spreading your risk across more than one provider.
While any provider is going to be helping you earn money, an important consideration has to be cost. This can sometimes be hard to clarify.
Along with the cost of getting your money into the right bank account, there may be developer costs from integrating the payment service, design costs from making it look snazzy, consultancy costs from setting up conversion funnels tracking or security, and audit costs if you work in a way requiring you to be PCI-compliant.
Many providers will charge a set-up fee, which may include setting up your Merchant ID, a monthly access fee, a transaction charge, a processing charge, a fraud profiling charge, reporting charges, refund or chargeback costs and conversion charges if you work in more than one currency.
The cost of banking
For small and medium businesses, the simple route of working with your business banking provider’s solution – such as ePDQ from Barclays, Merchant Services from HSBC or Streamline from NatWest – can appear easier. But these may be costlier than shopping around, depending on their current deals. Likewise PayPal, which can help make small payment values cost-effective to process through their service, could be more costly than other providers for credit and debit card transactions.
If you’re new to the world of payments, services like PayPal (and Amazon Flexible Payments Service, depending upon your territory of operation), or third parties that set you up quickly like Netbanx or 2checkout, may charge from 4 to 10 per cent of your transaction amount. Relatively new providers like Google Checkout may be more willing to be competitive with their charges and offer incentives such as a free Google AdWords budget to new merchants using their service.
Once you have more of a trading history, it’s well worth looking at gateways, where the transaction costs are likely to be in the region of 2-4 per cent, such as WorldPay, CyberSource and a raft of big players in the gateway world.
There are some generally accepted costs in the world of payment – debit card transaction costs are usually a fixed amount not a percentage, and credit card transaction percentage charges vary from Visa and Mastercard to Amex and Diners.
For some merchants, the added cost of setting up more exotic cards like Amex – you need a dedicated MID, plus there may be extra transaction charges – make their value questionable. However, for merchants dealing with high value items or experiences, or corporate services like b2b reports, they can be a necessary addition.
For newer, low volume sites it’s usually worth taking on a higher transaction fee for lower fixed costs while you get up and running – then review the basket size to know when a fixed monthly fee plus a lower transaction fee is more cost-effective.
For higher volume and more established sites, negotiate to reduce or remove monthly fees and review the percentage for transactions – like all other markets, it’s worth shopping around among a few providers.
As well as the cost of the provider, there are some other key ways you might end up paying for the service; not least is through how it impacts your conversion rates.
If you have a beautiful ecommerce experience connected to an ugly payment process branded solely and heavily with “Payments R Us”, you’ll be reducing your conversion rates. The benefits of transacting in a secure and obviously payment-focused environment are undermined by the jarring and often concerning feeling of moving to an alien environment. It’s worth checking how much you can customise the payment provider’s interaction with your customer.
It might simply be a case of adding your logo or CSS to improve the look of their pages; changing labels on buttons and copy in receipt emails; or being able to determine the eventual redirection out of their payment process back to your site.
All these things help keep your customers happy – as businesses grow, the degree of customisation expected by customers seems to grow too. Some payment gateways offer an ‘invisible’ service whereby your site captures all the payment information and passes it to their servers. This sort of service can help raise conversion considerably, but it requires your site to be PCI-compliant. Unless you’re a medium to large retailer/online commercial outlet, it may well not be worth the added technical complexity. If you’re a larger player, and have a willing technical partner and audit/security partner, however, it’s well worth investigating.
Once you’re happy with the cost of the provider and you’ve investigated how closely you can integrate the look of it into your site, you might want to consider how the provider can connect to other systems you’re using.
It’s worth investigating how data is made available to you and what data you can access online. Can you automatically send files to your fulfilment partner directly from the back office of the ecommerce solution, with a flag from the payment provider to show the authorised payment has been received? How can you process refunds or check receipt of the cash?
Find out if the services of interest to you have a direct connection to your choice of online shop, content management system or back office accounting package. The open source Drupal ecommerce module Ubercart integrates with many top-flight payment gateways straight out of the box, as do the hosted services like Shopify and Venda.
Some leading banks and gateways export data formatted ready to connect to Sage, SAP or Oracle, which can save extra integration work. Along with these considerations, there are ecommerce solutions with a .NET flavour to them such as Aivea and Volusion or Java-based delights such as ElasticPath, KonaKart and Avetti.
If development resources are limited within your company, it might be worth looking closely at services where more of the work is done for you. Working with established market leaders such as Venda enables you to draw on the learning they’ve gained by helping clients around the world. Google has its own flavour of instant shop, the Google Checkout Store Gadget, which mirrors PayPal’s version and shopping cart functionality, with hooks for stock management being kept in a simple Google Docs world.
For newbies wanting to test the waters, all services are simple and easy to get up and running. However, PayPal has considerably more brand reach at the moment compared to Google Checkout. It also offers both the option to take cash from PayPal accounts and to process credit and debit cards, which is a valuable edge for many smaller retailers.
For larger businesses, success may come at a price as more people connect to the growing global commercial markets online and the amount of fraud grows. Medium and large retailers are usually highly aware of the issue, and you should consider how much support you need in this area.
Larger companies working with leading gateways partners can access customer profiling, address and billing address validation plus other risk management services. These services come at an additional cost, but for many large companies they’re exceptionally valuable for reducing reputational risk and chargebacks.
With a sense of the costs involved, the integration issues, the level of customisation on offer and a feeling for how well the provider can connect you to the key territories you sell through, there’s one more major issue to consider – cashflow. The immediacy of transfer of funds from gateways and services into your account can vary considerably; some providers have price points for faster service.
Many global services run a live authorisation and daily payment file; others run more slowly by batching transactions and then processing these batches once they reach a certain size or age. Many providers offering MIDs to new businesses in next to no time will take from one week to one month to actually make a transfer of funds to your account. This is great for them and a pain for small start-ups and established businesses alike. So it’s vitally important to consult the small print about payment from the provider to your account.
International payments and reconciliation can take days or weeks, depending on your choice of local bank and global gateway. By investigating the service level and speed, you can ensure you aren’t hit with surprises later.
For those starting out and unsure of what the future holds, picking a service with a broad reach and limited overhead cost in exchange for higher transaction costs might be a good way to ease into this world. If you’re in the UK or USA, obvious first choices would be Google Checkout and PayPal – the latter offers a solid first choice for merchants everywhere. However, as you grow and develop your needs, it may make sense to supplement a simple service with either an all-in-one solution like Venda or Shopify + PayPal or to grow a relationship with a gateway. For more established businesses, now might be the time to review how much tracking and conversion information is available through your current partner; review and negotiate the price of the service; or consider adding a secondary route to grow reach and reduce risk.
As every business is different, so are the exact requirements you’ll have to make the most use of payments. However, it’s worth looking at some of the forums and advice available online through simple Googling when considering the different partners. You might also reach out to developers
and consultants with experience in this area.
Whichever route you take, it’s worth reviewing its value and your needs every six months, and negotiating to make sure you’re using the best service to support your business.
What might the future hold? Still yet to get cut-through despite many years and different versions, mobile payments must surely start to work some magic in the micropayment and subscription arenas soon. At the moment, the revenue share is frequently weighted in favour of the mobile operators and providers, making services like PayPal Micropayments and Tipjoy more appealing to most merchants, unless perhaps your main audience is the youth market. Also, can contactless technology and good old-fashioned barter come into play as global and local markets grow with equal speed? Just as surely as time is money, time will also tell how the world of payment will change in the coming five years.
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