Payments and Subscription Commerce - Doug Caviness


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  • 38% of American households live paycheck to paycheck (
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  • An acquiring bank (or acquirer) is the bank or financial institution that processes credit and or debit card payments for products or services for a merchant. The term acquirer indicates that the bank accepts or acquires credit card payment from the card-issuing banks within an association. The best-known (credit) card associations are Visa, MasterCard, American Express, Diners Club, Japan Credit Bureau, Attijariwafa Bank, and China UnionPay.Settlement - define
  • In Brazil, local acquirer with installment payments can get you a 25% higher authorization ratesFee reduction with local processing:If you’re transacting with a UK customer and have a UK acquirer, get lower interchange rates (VISA and MC) for taking funds from Germany into the UK. Interchange of 1,3% to 1,5%. In contrast, the same transaction using an acquirer in Germany would get a regional interchange rate of 1,75% to 1,80%. It would be even higher if your acquirer were in the USA.
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  • Payments and Subscription Commerce - Doug Caviness

    1. 1. Payments and Subscription CommerceDoug CavinessHead of SaaS Solutionscleverbridge
    2. 2. SpeakerDoug CavinessHead of SaaS Solutions,cleverbridge 20 years of experience intechnology & software industries Responsible for cleverbridge’se-commerce solutions for B2B &B2C SaaS / cloud providers &other digital product companieswith subscription billing
    3. 3. cleverbridgeFull-service, cloud-based e-commerce providerfor software & SaaS companies• Founded 2005• 200+ employees• Offices:CologneChicagoTokyo
    4. 4. TopicsGlobal MarketsTransaction ModelsPaymentsWhy successful payment processing is critical for subscriptionsMerchant Models and Payment SolutionsAdditional Payment ConsiderationsTactics to Manage Payments CostsQ&A
    5. 5. Global Markets
    6. 6. Think GlobalIn $billionsAPAC:• 23% global mkt• 9% y-o-y growth• Equivalent totoday’s America’smkt by 2020Source: Forrester Research Inc.IT Global Market Share(business and government)
    7. 7. Transaction Models
    8. 8. Perpetual License – pay before consumptionCommon Online Purchase Modelsfor Digital Products
    9. 9. Subscription – pay before consumption(monthly, quarterly, annually)Common Online Purchase Modelsfor Digital Products (continued)
    10. 10. Usage-based and Other Recurring Billing –prepay and/or pay after consumption(monthly, etc.)Common Online Purchase Modelsfor Digital Products (continued)
    11. 11. Payments
    12. 12. What Are Payments?Definition: The exchange of legal tender for goods
    13. 13. Customers Want to Pay in their Local CurrencyAustralian DollarBrazilian RealCanadian DollarSwiss FrancChinese YuanCzech KorunaDanish KroneEuroBritish PoundHong Kong DollarRussian RoubleSwedish KronaSingapore DollarThai BahtTurkish LiraTaiwan DollarUS DollarSouth African RandHungarian ForintIndian RupeeJapanese YenKorean WonLithuanian LitasLatvian LatMalaysian RinggitNorwegian KroneNew Zealand DollarPolish Zlotycleverbridge supports 28 payment currencies
    14. 14. Popular Online Payment MethodsB2B Bill PaymentPrice quote, invoice, and moreReal-Time Bank TransferSofortbanking, iDeal, NordeaCountry Specific Debit CardsCarte Bancaire, Carte Bleue,Switch Solo, MaestroInternational, Maestro UK, andmoreTraditional PaymentsCash, check, invoice, wiretransferVisa, Master Card, AmericanExpress, Discover, JCB, and moreCredit Cardse-WalletsPayPal, Alipay, WebMoney,and moreDirect DebitELV (Direct Debit Germany),Direct Debit Netherlands, andmoreCash Payment SlipsPayNearMe, Boleto Bancário,PayEasy, Konbini, and moreB2C Bill PaymentKlarna, and morecleverbridge supports 30 payment types
    15. 15. Sample vendors: BillMeLater and Klarna (Europe). Sophisticated onrisk management (payment and income habits). Not prevalent withdigital goods. Two models: deferred and installment payment.Fees: 4% to 8%, plus $1.00 per transactionApp Stores, Mobile Payments,Micropayments and Deferred PaymentsDeferred PaymentMicropayments (<$5.00)Mobile PaymentsSample Vendors: Boku, Fortumo. SMS or carrier-based billing.Transactions typically capped at $50.00.Fees from 15% to 50%.Sample Vendors: PayPal, Boku.Fees: 10%, plus $0.15 per transactionApp StoresSample Vendors: Apple, Google, Samsung.Fees: 20% to 30%
    16. 16. Payment Use Varies by Geo and DemographicSources:Payment type usage: aggregate client data[Redo this matrix and focus on only a 3-4 geos that arerelatively well established and mature.]
    17. 17. What e-Commerce Payment Methods areUsed by Japanese Consumers?1%11%14%31%34%48%56%0% 10% 20% 30% 40% 50% 60%Cash / ChequeCarrier BillingInternet BankingATM or Teller @bankKonbiniCOD (incl. CCOD)Credit CardSource: The Ministry of Internal Affairs and Communications of JapanJapan is a cash-orientedsociety
    18. 18. Common Reasons SubscriptionTransactions FailExpiration date of card is expired (25% of cards expire annually)Insufficient credit / funds (10% to 15% of cards might be maxed out)Fraudulent transaction (4% to 8% is common)International transaction (up to 25%+ of Intl declined, depending oncountry)issuing bank declines with an Intl acquirer (avoid fraud)international acquirer declines with an Intl issuing bank (avoid fraud)card does not allow Intl transactions (common in BRIC)Recurring billing is not supported by payment type (e.g., pre-paid Visa andMC in the USA and Italy)
    19. 19. Transaction Failures Can KillSubscription RevenueTransaction Type IntervalTotalPotential1 2 3 4 5 …Perpetual License $60 $60Annual Subscription(on auto renew)$60 $60 $60 $180Monthly Subscription(on auto renew)$6 $6 $6 $6 $6 $6 $216Scenario:avg. potential lifeof 3 yrs.Potential cancellations due to transaction failures
    20. 20. Merchant Models and Payment Solutions
    21. 21. Merchant of RecordDefinition: The entity that holds legal title to goods or services and fromwhich the customer purchases these goods or services.The entity whose name appears on the credit card charge and to whom theapplicable credit card company shall reimburse for the amount of the creditcard charge.Two Common Models:Service ProviderReseller Model
    22. 22. Merchant AccountA type of bank account that allows businesses to accept payments bypayment cards, typically debit or credit cardsEstablished under an agreement between an acceptor and a merchantacquiring bank for the settlement of payment card transactions (Source:Sample Vendors:WorldPayChase PaymentTechBank of AmericaFees from 1.8% to 3% per transaction
    23. 23. Payment ProviderAn entity that provides payment processing services, typically for a singleproprietary payment method.Sample Vendors:PayPalAmazon PaymentsSkrill-Money BookersFees from 2% to 3%, plus $0.35 per transaction
    24. 24. Payment Service Provider (PSP)Combines acquiring and alternative payment processing (e.g., GoogleWallet, Yandex in Russia, Alipay in China) in one interface and facilitates thesettlement of multiple payment methods.Sample Vendors:WorldPayGlobalCollectCardinal CommerceFees from 4% to 10%, plus $0.30-$0.50 per transaction
    25. 25. Payment GatewayPayment Gateways provide: a unified API for processing transactions with multiple PaymentProviders or payment methodsPCI complianceYou are still required to:Establish contracts directly with individual Payment ProvidersReceive and reconcile payments directly from the Acquirer or PaymentProviderSample Vendors:Ogone (full service provider)GlobalCollect (full service in USA -- includes PSP)BrainTreeFees for Gateway-only services: $0.50 to $0.70 per transaction, but insubstantial volumes can get as low as $0.08 per transaction
    26. 26. PayoutFitting the Payment Pieces TogetherMerchantGatewayPaymentProvider 1PaymentProvider 2PaymentProvider 4PaymentProvider 5Payment SvcProviderAPIPaymentProvider 3PayoutAPIPayoutPayoutAPIDirectintegration withPaymentProviderIntegration viaPaymentServiceProviderIntegration viaGateway
    27. 27. Considerations with Payment Solutions --GeneralIntegration of payment methodEasier if you use a Gateway or PSP as an intermediaryGain more control and lower fees with direct integration, but incurhigher maintenance costsCost structure – variable and fixed costsLook for hidden costs (currency conversion, etc.)Ask for tiered pricing based on volume and AOVSystem availability / SLAHistorical downtimesBackup of transaction processingQuality of service – can you speak with someone?
    28. 28. Considerations with Payment Solutions --InternationalBenefits of local processing:Higher card authorization rates (up to 25%+ better)Ability to process non-international cardsAvoidance of FX and foreign currency transaction fees (1% to 8% additional)that can hit you or your customerAbility to handle some offline payments (e.g., Boleto Bancario)Fee reduction from PSP for local processing (e.g., German bank transfer)Repatriation and settlement of funds
    29. 29. Considerations with Payment Solutions –International (continued) Is a local entity needed to process some local payments?Examples: Konbini, Boleto Bancario, Dankort (Danish debit card). Can your PSP facilitate local payment methods?Example: Global Collect can enable Boleto Bancario and some Konbinipayments (7-Eleven is excluded). Are taxes included in your payment fees?Tax withholding: 30 % in India and up to 30% in Brazil. Example:Boleto Bancario (Brazil) costs 25%, plus $1.00 to $3.00 per trans (incl. upto 25% for tax on Intl trans). Generally when selling from outside thecountry and the customer pays with an Intl credit card, there is nowithholding of taxes for the merchant. But, in Brazil, the customer would beassessed a 6.38% tax on their CC statement.
    30. 30. Additional Considerations with Payments
    31. 31. 6%12% 14%19%33%44%52% 54%59%70%0%10%20%30%40%50%60%70%80%Order non-Completion RatesSources:Order non-completion rates: aggregate client data
    32. 32. Strategies to Manage Processing Costs
    33. 33. • Delay processing credit card for 3 days toincrease AOV• Virtual goods: sell prepays of $10+• Offer incentives to convert monthlysubscription to annual subscription• Optimize balance of direct integrations andthird party integrationsTactics to Manage Processing Costs10% of APAC70 7.9% growth
    34. 34. • Global market• Payment requirements vary based on:• product• business model• customer demographics• Subscription businesses rely on successfulpayment processing• merchant and payment models• Weigh costs / benefits and implications of yourpayments solutionSummary
    35. 35. Q & A
    36. 36. Thank You
    37. 37. CustomerinstatesorderCustomerreceivesgoodsOrder isprocessedCustomerreceivesinfo onsuccessfultransactionTransaction is routedtoAcquirer/PSP/Bank orPaymentTransaction isauthorisedby PSP/Bank orPaymentcleverbridgeconsolidatesfund flowandreportingfor clientandsubtractscomissionClient37Transaction InformationFlowPayment FlowReporting FlowFinancial ServicesAuthorisation/BAFINPCI CompliancyMoney Movementcb reseller model
    38. 38. cb payment gateway – Service ProviderModel38Transaction InformationFlowPayment FlowReporting FlowFinancial ServicesAuthorisation/BAFINPCI CompliancyMoney MovementCustomerinstatesorderCustomerreceivesgoodsOrder isprocessedCustomerreceivesinfo onsuccessfultransactionTransaction is routedtoAcquirer/PSP/Bank orPaymentTransaction isauthorisedby PSP/Bank orPaymentClientClientpaysService-FeePaymentGatewayprovidesreporting
    39. 39. Market Research Payments BrazilStatistics Brazil1. eMarketer, Canada B2C eCommerce: a Work in Progress, 12/22/20082. ibid3. ibid4. ibid5. ibid6. Nielsen Canada, “Online Shopping”, 11/2008
    40. 40. • Monthly billing creates challenges forcustomers who use offline payments• Enhanced recurring billing capabilities: Direct Debit PayPal• Consider providing customers incentives topay for subscriptions quarterly or annuallyEvolution to Subscription Creates Conflictwith Offline PaymentsExample: