Why a Global Payment System is Critical to E-commerce
Business today is undeniably global: almost every product or service that is bought and sold anywhere around the world touches multiple countries and businesses. For merchants, it’s becoming a reality that success relies upon the ability to not only source products from overseas, but also sell to customers wherever they may be.
Today’s payment systems, though, may not deliver on the promise of global capabilities, leading innovators and leaders across industries to look for better ways to process transactions in the geographies that make the most sense.
What is a global payment system?
The fundamental building blocks of global payments systems include:
- Banks: Both acquiring banks (where merchants have their accounts) and issuing banks (where customers hold theirs) are fundamental to global payments. Banks offer the interfaces and the infrastructure to transfer funds from one entity to another.
- Payment Gateways: These intermediaries act as messengers between merchants and customers, making the direct connections to banks, card networks, and other financial institutions needed to process transactions. Their presence in the supply chain ensures that banks are not swamped by connections from hundreds of millions of individual merchants and can deliver near-instantaneous service.
- Card Networks: These are the credit card companies and networks with which we are all familiar. While by no means are these the only payment method available today (see below), they dominate the sphere of online global payments.
- Payment Providers: Originally relatively simple overlays to payment gateways that made it easier for merchants to build relationships with payment gateways, huge global payment providers like Stripe, Adyen, and PayPal now blur the boundaries, acting as both technology enablers and payment gateways.
- Alternative Payment Methods: Where once the dominant payment method was credit card, there has been an explosion over the last two decades of alternative payment methods like digital wallets and geographically-focused solutions like Sofort and Pix. While interacting with these services requires a slightly different approach to the card networks, they are critical to the success of any global payment system. Customers worldwide display wildly diverging preferences and may be reluctant to make purchases using traditional credit cards.
- Specialty Providers: Some payment service providers specialize in high-risk transactions, while others offer enhanced services around things like security and authentication. With global payment regulations proliferating, and varying significantly, from country to country, merchants often need to consider adding these very specific providers to their stable of payment partners.
In an increasingly borderless business environment, a global payment system is a web of banks, gateways, processors, and service providers that complete transactions between buyers and sellers—wherever they may be.
How can a merchant access global payment systems?
The easiest way for merchants to access global payment systems is through full-service payment service providers (PSPs). These providers offer a standardized set of services, with associated fees, that largely obscure the complexities of dealing with things like cross-border transactions and international settlement. Their standardized fee schedules also make business planning relatively simple, as they tend to be simple and transparent—if not necessarily inexpensive.
However, with the increased interest in building global payment systems that can expand the merchant’s reach worldwide, the simplified offerings of the full-service PSP have started to show their age.
As a result, many PSPs are now offering Forward APIs, which acknowledge what may be an uncomfortable truth: merchants who want to process global transactions today likely need way more than one partner.
They may need a simple, full-service PSP for basic, credit card-based transactions in the United States—but they increasingly find that they can:
- Access lower processing fees, and higher rates of successful transaction processing by partnering with a totally different provider in another country.
- Increase their transaction close rates, and protect their business reputation, by partnering with high-risk PSP specialists for particular products and services.
- Improve the appeal of their service by offering subscriptions managed through digital wallets, which may bypass the PSP entirely.
- Increase their confidence in business continuity by ensuring that a ‘Service Down’ situation with their primary PSP can be managed by simply switching to a secondary provider.
As merchants avail themselves of the vast and lucrative opportunities afforded by global commerce, they are increasingly wary of committing to a single PSP partner to connect them with the global payment system.
Benefits of a Global Payment System
Although it can be tempting to believe that a single, full-service PSP may offer a sufficiently comprehensive solution that will enable all kinds of transactions, wherever they originate, the reality is much more complex.
Having access to services around the world allows merchants to avoid challenges like:
- Currency and Exchange Management: While it is obvious that currency exchange rates change on a moment to moment basis, it may not be so obvious that those rates also change based on who is offering them. A US-based provider may provide ‘implicit’ currency exchange, but they will likely include either fees or a slightly lower-than-market rate to pay for the service. Merchants who have agreements with providers worldwide may find that they receive superior rates when settlement is complete.
- Fraud Prevention: Using different providers in different geographies can mean a better result for merchants, as their fraud partners are more attuned to the particular needs of their own location.
- Customer Experience: While full-service PSPs offer a plethora of different payment methods and connections, they cannot always create agreements with local institutions at the speed merchants need. Merchants who make their own global payment method agreements may be able to launch them more rapidly into new countries.
- Cross Border Fees: Merchants with significant volumes of business may find it beneficial to leave their funds with acquiring banks in the same country as their customers in order to avoid cross-border fees, particularly if they have business operations or suppliers in those locales who can then be paid in the local currency.
For most merchants, the best way to build a global payment system is to build their own decisioning engine (which selects the best downstream providers for each transaction), then align it with a programmable payments vault, which securely collects, stores, and provides access to customer payment details.
Using an agnostic payment vault not only transitions PCI-DSS responsibilities away from the merchant’s system, it represents a neutral third party uninvolved in the actual processing of transactions,. The payment vault can be used to interoperate with any global payment system participant at will. In contrast to a Forward API from a PSP, programmable payment vaults are limited only by the size of the merchant’s partner network rather than agreements made at the PSP level.
Moreover, as the vault has no vested interest in which downstream global payments system partner is involved in any given transaction, it is fundamentally better aligned with the merchant's interests.
