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Payment Lessons From Merchants
Every merchant in the world is looking for an edge, especially for those who are making sales online as margins tend to be thin, and the costs of doing business unpredictable. One of the greatest sources of unexpected economic pressure is the cost of actually receiving the revenue customers want to give you.
Every other player in the ecosystem wants to take their slice of the pie as your revenue passes through their systems, from issuing banks to PSPs to merchant banks.
Here’s some real lessons merchants out there have learned along the way.
Local Payment Options Aren’t Optional
For a long time, US-based businesses found themselves puzzled by the slow growth in their overseas sales. After all, customers simply had to type in their credit card numbers and deals could be done instantaneously. As it turned out, customers in diverse geographies had equally diverse preferences for how to send money, from direct transfers to local wallets to entirely unique programs like Sofort.
The challenge is, and always has been, how to ensure every alternative payment method customers prefer is made available, even as they appear, evolve, and even disappear over time. While full-service PSPs often offer extensive lists of options, they can’t keep up with the pace of the financial industry, meaning that merchants beholden to a single PSP partner are in danger of falling behind, and leaving money on the table.
Repeat Payments are the Foundation of Sustainable Businesses
Selling something once is great, building an ongoing seller/buyer relationship is fundamental to creating a sustainable business model. Across multiple market segments this has fully changed the way businesses operate, from entertainment companies creating subscription streaming services to software companies adopting subscription models over perpetual licenses to the absolute explosion of loyalty programs for everything from airlines to grocery stores.
Merchants have learned that the key to reliable, repeatable business is to make it easy for customers to come back, over and over.
Key to making the most of repeat business, subscription or otherwise, is to store payment information for ongoing use. And at the heart of guaranteeing the future of a business that relies upon repeat purchases is the storage, and ownership, of the customer’s payment details. Many a merchant has fallen victim to the broken promises of working with a single PSP: when the merchant is ready to either move to a rival, or to add another to their stable of downstream partners, they discover that the PSP actually owns the information and is somewhere between reticent and fully unwilling to share it.
This is why creating a multi-processor payment system is a project every merchant should start as early in their journey as humanly possible.
YouPay quickly realized they could save a full $10k in fees each time they added a PSP by working with Basis Theory.
Removing Friction is Critical
If there is one thing that has been undeniable virtually from the first day e-commerce appeared on the scene, it is that friction is the barrier that can break any deal. The more steps a customer has to complete to make their purchase, the likelier it is that they will give up and move on.
This has led to a number of important developments in the space, from user experience design intended to speed customers through the buying process, to the growth of digital wallets that can be used widely, to the requirement for all merchants to store and manage their own customers’ payment details.
Jon Cochrane of Maxio notes that “Many providers hold tokens hostage in an attempt to prevent you from leaving their platform”, which was why he opted to use Basis Theory’s vault instead.
This means ensuring that customers can use their favorite payment methods, storing their payment details for recall later, and ensuring payment processing happens quickly and smoothly. For a lot of merchants, the shortest path is to use a third party’s payment forms, so that they can lean on their partners’ expertise in getting the right amount of information in the simplest ways possible. While it can be tempting to lean on a PSP’s forms, trapping the information in the database of a single processing partner can create downstream risks when, for instance, the merchant wants to use an additional (or a replacement!) PSP.
For this reason, many merchants work with programmable payments vaults, which collect and store information securely, then make it available to the merchant to submit to the PSP of their choice.
Managing Costs Are Key to Long-Term Economics
When merchants start out, they have to at least consider the services of full-service PSPs like Stripe, because getting up and running can be extremely quick.
In addition, merchants are often drawn to the simplicity of the fee schedules, which can appear to be clear, simple, and easy to plug into a financial model. As time goes by, however, they learn about the extra fees that can mount up (like refunds and chargebacks), the specifics of where they are paying far more than they should (such as when the user offers a debit card rather than a credit card), and the missed opportunities to add revenue-producing options (including running their own currency conversion program).
Revenue sacrificed in favor of simplicity and predictability can be justified in the early going, but rapidly becomes a drag on the business. This is why the majority of merchants find themselves in pursuit of a multi-processor system, which allows them to leverage different rates for different types of sales, in different geographies, and varied payment methods.
Over time, the slightly elevated overhead of managing multiple gateway or PSP relationships is easily outweighed by the reduction in fees, increase in successful transaction completions, and opportunities to self-manage currency operations.
Data Security Can Become Expensive
Hardly a week goes by without another hack or a data leak, with the ensuing media hullabaloo putting a sizable dent in the victim’s brand equity. It is not only the responsibility of the merchant to protect their customer’s private information, it is also a core requirement to maintain the trust of the buying public.
For the most part, security can be maintained by following the PCI-DSS regulations, which is required by the major credit card networks. When volumes are low, the cost of PCI compliance is a relatively inexpensive endeavor, with annual self-audits submitted to demonstrate compliance. As a business grows, though, the demands of the PCI structure can become expensive, both in terms of money and time spent.
This is another reason why merchants are increasingly looking to third-party vaults: by ensuring personally identifiable information (PII) is collected and stored by a trusted partner, which maintains PCI Level 1 compliance, the merchant can deliver the security their customers deserve, while keeping the majority of their payment systems out of scope, and reducing their cost basis.
Basis Theory customer Anton was able to build its payments system in 36 hours, and, founder Ryan Olson explained that, “Our entire AI risk engine runs on tokens…Zero PII anywhere in our environment.”
Get started with Basis Theory at developers.basistheory.com. Use the guides to safely collect, share, process, and govern the data in your applications.
