Online sellers can choose between an increasing number of Payment Service Providers helping them to accept payments online, to minimize risks of non-payment and to settle and reconcile payments. To assist online merchants and business in their selection process, we provide criteria to take into consideration when searching for a Payment Service Provider or looking to switch from one Payment Service Provider (PSP) to another. There is no "one size fits all", as merchants' needs depend on several factors including target audience, appetite for costs and risks, and technical know-how.
1. Determine target audience & payment method offering
An online seller's interest should be about maximum conversion; turning as many shoppers into buyers by offering the right the set of online payment methods. Online sellers need to understand that every country and specific merchant segments (ticketing, subscription based services, gambling, etc) require a specific set of payment methods to make the most of every shopper.
For online sellers there are two important questions to answer:
1. What is my target audience? Where are my customers coming from?
2. What are the online payment capabilities and preferences of my customers?
Besides determining the required set of payment methods to start with, the merchant also needs to take into account payment methods potentially needed in future. It can be costly if the seller cannot add required payment method(s) through its existing Payment Service Provider relationship when starting to sell into other countries. If the merchants needs to switch or add Payment Service Providers just for the purpose of adding new payment methods, the costs – e.g. for technical integration and migration, new reconciliation procedures – can be substantial.
Please note that especially local payment methods – which often are important for maximum conversion – are not always supported by every Payment Service Provider. Therefore it is important for merchants to understand what payment methods are of importance for their specific markets (please refer to Which payment methods to support per country). The best advice to merchants is to draft a list of must-have and like-to-have payment methods and verify whether their pre-selected Payment Service Provider(s) can support those.
2. Determine required additional payment method features
Besides the actual payment methods, online sellers also need to realize that specific payment features are needed to simplify the payment experience for their shoppers or customers, and for themselves. Especially card payments support additional payment options like recurring and installment payments, which can improve the online buying experience and – in some cases – are needed for conversion.
Recurring card payments refers to payments whereby the merchant is able to charge the customer's credit card without involvement of the cardholder or the need for the cardholder to re-enter credit card details when checking out. Recurring payments can service two business purposes: to facilitate for recurring billings (e.g. subscription based payments and utility bill payments) and to simplify checkouts for returning customers (!). Some well-known examples of businesses using recurring payments for returning customers are Netflix, Spotify (monthly recurring), Apple (Apple Store) and Google (Google Play).
Payment Service Providers play an important role in facilitating recurring payments. It requires the ability to:
- securely capture and store credit card information upon the first transaction of the cardholder (nowadays Payment Service Provider use "tokenization" to securely support for recurring payments);
- the mechanism to charge cards on the agreed time frame (and a process to keep card information up-to-date);
- to re-use card data for processing when a specific customer returns (please keep this in mind as most merchants have returning customers and could offer them an improved, simplified checkout (especially when buying on mobile devices and there is no obligation for the customer to enter card data).
Installment card payments or "installments" refers to payments whereby the cardholder is able to split a payment into smaller transactions, spread over an agreed period of time, by using a credit card. The bank that issues credit cards to customers determine whether or not installment payments are possible. In some countries like Brazil, Romania, Turkey and India, installment are very popular and important for conversion.
Note that not every Payment Service Provider does support recurring or installments payments. The merchant or business should take this into account when selecting their Payment Service Provider.
3. Integration options
These plug-ins decrease the need for technical know-how and costly investments in development and IT-resources to build and maintain a processing facility between the merchant's shopping cart software or commerce platform and the PSP payment platform. Many merchants around the world use "off-the-shelf" shopping cart systems (such as Magento, OpenCart and Demandware) or commerce platforms (such as Shopify and Wix) for their ecommerce businesses. Payment Service Providers have developed standard lines of codes (pre-tested and certified against these ecommerce systems) which makes integration easier and less costly for merchants.
It is of great importance for merchants (and their developers) to understand the integration options provided by their Payment Service Provider(s) and to research the availability and quality of the PSP's technical documentation and support. Merchants really should take the costs and speed of integration into account, as the required investments could be costly, even exceed potential cost savings on transaction processing or delay the "go-live" of the merchants online business.
- Hosted Payment Pages (HPP): ready-to-use payment service using the PSPs server. The customer (shopper) transaction data is imputed in the PSP domain and not within the merchant domain – severely delimiting the scope of PCI DSS requirements as no sensitive data is stored within the merchants' system. Using a HPP will mean lower costs of integration (and maintenance) and PCI DSS, however, limit the capabilities of customizing checkouts and maintain merchant look & feel (despite possible logo or color changes to the payment page)
- Application Programming Interface (API): an API allows merchants to host their own payment pages and in-app checkout screens and control payment and shopper data. Using API integration will require specific knowledge how to code and integrate with the PSP system (increasing integration and maintenance costs) and will require resources to achieve and maintain compliant with PCI DSS rules as data is stored within merchant systems. On the contrary, merchants can fully control the design of their pages and the mobile, in-app checkout experience.
- Javascrypt (.js) Encryption: this technical integration enables a direct connection from the merchant's payment page or mobile application without sensitive payment data being captured on the merchant systems. Often the payment page is then offered inline or as an overlay payment page. By ensuring that sensitive payment data does not touch the merchant's system, the PCI DSS scope will be limited. By using .js encryption, the merchant is still able to profit from full customizing options and to provide the brands' customer experience.
4. Verify fraud prevention capabilities
Especially for merchants taking card payments over the Internet, it is important to be able to rely on some kind of fraud prevention system. As fraudulent card payments could lead to a loss of money (chargeback), products and additional costs for handling (chargeback fees, operational cost), and it is economically unfeasible and practically impossible to verify every card payment, merchants should be able to use a anti-fraud system leveraged by their Payment Service Provider.
Most Payment Service Providers have built their own fraud prevention platforms or use the anti-fraud technology offered by specialized anti-fraud companies. They use score-based models and rule-based models or a combination to prevent fraudulent transactions from happening. They allow merchants to set their own specific rules (or scoring) or pre-define fraud prevention rules.
Equally important to preventing fraud is the ability to minimize so-called "false positives". False positives relate to "bonafide" card transactions which are incorrectly blocked to specific pre-set fraud rules. False positives lead to a loss in conversion (sales) and frustrated customers.
The well-known security protocol "3D-secure" – developed by the major card schemes, and known to generate false positives and negatively impact conversion rates – is often available through the fraud prevention systems of Payment Service Providers. Nowadays some providers offer so-called "flexible 3D-secure" solutions which allow merchants to determine when to use the additional 3D-secure check (e.g only for specific countries, products, transaction amounts or for new customers).
It is hard for merchants to assess and compare the quality and effectiveness of fraud prevention systems offered by Payment Service Providers. When searching for a Payment Service Provider, it is probably best to first decide on the merchant's appetite for risk management. Do they want to in-source or outsource fraud management. In case the merchant wants to be flexible and in control, it should look for a Payment Service Provider which allows them to set their own rules and scoring. Then the merchant should bare in mind the resources and investments needed to properly execute risk management as the prevention of fraud and false positives requires continuously attention.
Some questions which can be helpful for merchants:
- Does the Payment Service Provider provide a fraud prevention tool?
- Does the Payment Service Provider set the rules themselves or do they allow merchants to create their own rules and scoring models?
- Do they allow for flexible 3D-secure?
- Do they allow for (retrospective) fraud analyses?
5. Back-office & reporting
For online merchants, whether small, medium or large, it is of great importance to have access to its own payment processing data and to be able to (easily) reconcile its payments. The PSP back-office should allow merchants to easily retrieve information about their set-up and allow them to review transactions or extract transaction related data. Merchants should be able to generate reports that allows them to easily see what transaction has been approved (in order for them to start shipment) and in case of settlements, which transactions are included in the settlement (and what costs are being applied).
Many Payment Service Providers provide the ability to merchant to automatically generate custom reports and/or download specific reports in a format that is required by the merchant's ordering system and accounting tool. Merchants – especially the larger ones – should really take into account the support of data extraction, specific formats and special plug-ins for accounting tools. In addition, some PSPs provide (custom) transaction and fraud analysis reports which helps merchants commercially (e.g. to know where customers are coming from and when they are shopping online), as well as providing insights to mitigate losses as a result of fraud and chargebacks. If not supported by the Payment Service Provider, the cost of resources needed for reconciliation and transaction analysis can be costly.
6. Mobile readiness
Nowadays, online merchants and in-app sellers should really focus on the mobile readiness of the payment page offered by their Payment Service Provider (if using the PSP's standard payment page and not a merchant custom designed payment page). Online payments through smartphones and tablets are gradually winning market share and for some merchants already represent 40% or more of their total online turnover. Please note that in some markets, the number of smartphone users exceeds the number of desktop users. "Mobile-first" should be on top of mind for online sellers, also when it comes to the checkout experience and payment page.
The buyer's experience, interaction and expectation on mobile screens – especially when purchasing on smartphones – do require adjustments of the payment page's design and usability. Especially usability is known to be an important conversion factor. Merchants should challenge their Payment Service Providers to provide detailed insight in the responsiveness of their payment pages. Some Payment Service Providers have developed mobile optimized payment pages to perfect fit screen and minimize abandonment. It is good to recognize that mobile-friendly websites and simplified payment checkouts will be greatly appreciated by shoppers. On the contrary, non-responsive or non-smart mobile payment pages could lead to frustrated shoppers, conversion loss and irreparable brand damage.
7. One-stop shop vs payment gateway
As outlined in the types of Payment Service Providers chapter, merchants are able to choose between Distributing, Collecting and Aggregating Payment Service Providers. Aggregating PSPs – processing and settling online payments through one contract – basically act as one-stop shop for merchants. They simplify life for online sellers, as there is no need for them to separately sign with (acquiring) banks or payment solutions. Aggregating PSPs provide the payment gateway and settle funds into the merchant's bank account.
In general, an aggregator or one-stop shop decreases the amount of paperwork and increases the speed of on-boarding and go-live. On the contrary, most often they have default pricing offers and tiers which might not be to the best interest of the seller. Especially larger online sellers, with greater processing volumes, might be able to benefit from custom pricing models in direct contractual relationship with an acquirer or payment solution. In addition to better commercial terms, merchant could benefit from better customer support, comprehensive reporting and potential commercial collaboration (e.g. joint marketing campaigns).
From a reconciliation point of view, merchants might be better of by using a one-stop shop instead of a payment gateway only (distributing PSP). They normally combine and settle funds of multiple payment methods and release them with accompanying reports – thereby simplifying the payment/order matching process on the merchant's side. When choosing for individual contracts and arrangements with banks or payment solutions, the frequency and time frame between settlements and the way reports are constructed can differ. Online sellers need to realize that that could increase the resources needed for reconciliation purposes and might result in higher operational costs.
8. Customer support
When selecting a Payment Service Provider, it is wise to take into account the PSP's customer support opening hours and means of communication. Some PSPs have high customer support standards, are transparent about their SLAs and are open around the clock through different means of communication. Others might have limited opening hours which might not suit your needs as an 24/7 online entrepreneur. Please also bare in mind that when choosing for an international Payment Service Provider, they provide customer support in your preferred language and are open during your hours of operation (keep in mind timezone differences).
9. Settlement currency support and settlement time frame
Especially for merchants trading in foreign currencies and internationally, it is of importance to know upfront whether the Payment Service Provider is able to support the merchant's preferred currencies and if their (acquiring) bank supports settlement in foreign currencies as well. Not every card acquirer or payment solution company is able to authorize and settle in foreign currencies.
For online sellers, it is good to know that acquirers and payment solution companies might be able to process specific transaction currencies, but are not able to receive and settle funds to the seller in the foreign currency.
For example, a Payment Service Provider and card acquiring bank of merchant X are able to process US dollar as a transaction currency. However, due to the acquiring bank's set-up they are not able to receive US dollar from the card scheme. They are settled in their base currency, for example the euro. This means that the online seller will be settled in euros (and will bear the costs of currency conversion conducted by the card scheme). In case this is also the merchant's base currency, which is not a problem. However, if the merchant operation requires US Dollar funding it is an unnecessary cost.
10. Special features
Besides all the core functions to be provided by the Payment Service Provider, there might be some unique features which could be a decisive factor for online sellers. Below you can find some of the features supported by one or more Payment Service Providers which helps merchants to increase conversion, decrease abandonment rates or simply make life easier.
Not every Payment Service Provider provides the option to its merchants to adopt 3D-secure in a smart and flexible way. Normally the anti-fraud and chargeback solution for card payments is turned on or off. Some PSPs have developed a more intelligent 3D-secure approach that allows merchants to enforce 3D-secure authentication based upon specific, pre-defined rules or scoring models.
The extra 3D-secure step during checkout – mandating the shopper to enter its personal (static or dynamic) pass code when purchasing online with a credit card – is known to negatively impact conversion by causing false positives. Genuine shoppers might be scared by having to enter an additional code which they might not be familiar with, or they might have forgotten their static pass code or they are unable to generate a instant, one-time pass code – normally to be generated by some sort of token/code generation device issued by the cardholder's bank. In addition, the 3D-secure checkout process which redirects shoppers to a different screen (pop-up) causes abstinence, and creates an even more challenging checkout on smaller, mobile devices.