The myths and realities of Local Payments: How to maximise value for merchants
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An overview of how merchants should approach Local Payments and the different options available for integrating with Local Payments. By Checkout.com - Online Payments.
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The myths and realities of Local Payments: How to maximise value for merchants
- 1. Myths & Realities of Local Payments: How to maximise value for merchants
- 2. 2 What are Local Payments ? Private & Confidential | eCommerce Expo Online Banking Examples: iDEAL, SOFORT Banking, SafetyPay Local Card Schemes & Prepaid Examples: Aura, Hipercard, Paysafecard Cash based Solutions Examples: Boleto Bancàrio, MOLPay Cash, cash on delivery eWallets Examples: PayPal, Alipay, Tenpay, Yandex.Money, Qiwi, Apple Pay
- 3. 3 Local Payments represent a large proportion of the eCommerce transactions landscape Private & Confidential | eCommerce Expo
- 4. 72% 7% 5% 4.90% 11.10% 4 In some countries, selling cross-border without Local Payments, is like not accepting Debit Cards in the UK Private & Confidential | eCommerce Expo 19% 47% 24% 5.20% 4.80% 26% 58.34% 11.40% 2.28% 2.40% Cash solution International Cards eWallets Online Banking Local Cards
- 5. 5 The Local Payments landscape is changing rapidly, with new payment solutions becoming constantly available Private & Confidential | eCommerce Expo 2012 2015
- 6. 6 While other payment solutions are changing or being terminated Private & Confidential | eCommerce Expo European Domestic Direct Debit Schemes X
- 7. • Increased conversion rate • Reduction of payment processing costs • Complete elimination of fraud 7 There are some established and some debatable benefits of Local Payments for merchants Private & Confidential | eCommerce Expo • Increased reach • Better credibility and trust from consumers • Reduction of chargeback risk and costs Established Benefits Debatable Benefits
- 8. 8 Merchants have 3 different ways of activating Local Payments Private & Confidential | eCommerce Expo • Individual agreement and pricing with each LP + agreement/pricing with PSP • Single Technical integration with PSP only • Multiple funds settlement from each LP • Agreement and pricing signed with PSP only • Single Technical integration with PSP only • Consolidated funds settlement from PSP only • Multiple Integration with each LP • Multiple funds settlement from each LP Fully Integrated DistributorTechnical IntegratorDirect … + + Agreement + Funds settlement Technical integration
- 9. Merchants need to overcome 4 main challenges to effectively accept Local Payments 9Private & Confidential | eCommerce Expo B A C D Selecting and maintaining at all time the right Local Payments Negotiating pricing and reviewing details of agreement Integrating the payment methods and managing the ‘Checkout’ step for the shoppers Managing the various payment options on a day-to-day basis
- 10. 10 Selecting and maintaining the right Local Payments at all time Private & Confidential | eCommerce Expo A B Which LP is accepted/ adapted for which merchant? Which LP is adapted for which geography? Which LP is supporting which currencies? Which LP for which type of customers? • Which legal and regulatory framework applies? • How are the merchants and the users protected? • What are the rules for refunds/chargebacks? • How often is the pricing revised and need to be re-discussed?
- 11. Managing Local Payments on a day-to-day basis 11Private & Confidential | eCommerce Expo Reconciling collected funds Processing refunds, disputing chargebacks Managing planned and unplanned downtimes Upgrade technology integration C
- 12. Integrating the payment methods and managing the ‘Checkout’ step for the shoppers 12Private & Confidential | eCommerce Expo o Credit Cards o Tenpay o Alipay o eNETS o iDEAL o Sofort o POLi o Paysafecard o Visa Checkout o Boleto Bancario o SafetyPay D
- 13. Integrating the payment methods and managing the ‘Checkout’ step for the shoppers 13Private & Confidential | eCommerce Expo Selecting and maintaining at all time the right Alternative Payments D
- 14. 14 The fully integrated distributor model creates most value for merchants, but is not yet available for all Local Payments Private & Confidential | eCommerce Expo … + + Most LPs available High resources required to manage legal, pricing, technical integration, funds reconciliation Lower pricing (if merchant is big enough) Most LPs available 1 simplified integration 1 single simplified contractual relationship 1 single combined settlement (easy reconciliation) 1 single simplified integration Not all LPs currently supporting this model Several relationships to manage Funds reconciliation from multiple sources Fully Integrated DistributorTechnical IntegratorDirect ✖ ✖ ✖ ✖
- 15. 15Private & Confidential | eCommerce Expo @checkout /checkout /company/checkout /checkoutpayments Info@checkout.com London HQ 32 Wigmore Street London W1U 2RP United Kingdom T/ +44 207 232 3888 Singapore 8 Eu Tong Sen Street The Central #13-81 Singapore 059817 T/ +65 622 11664 Dubai Shatha Tower Dubai Internet City United Arab Emirates T/ +971 55 418 4266 Mauritius Level 10, NextEracom Tower 1 CyberCity, Ebene, Mauritius T/ +230 467 1430 Get in touch
Editor's Notes
- Alternative Payments are all ‘non-international cards’ payments methods used to pay-online. eWallets The established eWallets, the leading alternative payments and most growing alternative payments of all. Growth is mostly driven by the super large players PayPal, Alipay, as well as the more recent entrance of the MasterPass and Visa Checkout, the respective wallets of MasterCard and Visa. The growth of AliPay is truly impressive and is notably the most preferred way of paying online cross-border transactions for Chinese online shoppers. eWallets are the most popular solutions for both Consumers and merchants, because they combine a technology layer as well as a protection layer that creates value on both sides. They are also the most ‘mobile’ friends Alternative Payments, and are fuelled by the significant growth of smartphone around the globe. I just came back from the Philippines, where the ecommerce market is emerging, but where 60% of online transaction happens on mobile, versus only 8% in the UK. Most eWallets remain often funded by cards or cards, but are still behaving as stand alone AP Online Banking Online Banking are also popular, but I would say that they often compete with ‘Debit’ cards, which are usually available to the shopper who owns a Bank account. Debit cards has also become a strategic product for Visa and MasterCard mainly to increase their share of wallet and market share Online Banking usually offer a cheaper of fixed based costs for the merchant, as well as a extra level of security for the cardholder who logs using is eBanking credentials. On the user experience, Online banking is still more cumbersome to use than eWallets/Cards, but most Scandinavian bank offers SMS confirmation and enable a very simple way to pay online with your bank account. Local Card scheme / Prepaid The local card are scheme usually established by association of banks in a same country, using their own Switch/clearing system and own rules. They can be very popular (as an alternative to a Debit card basically) and not accepting them usually impact sales as there as their cardholders usually have no alternative ways of paying online Cash based solution Again, mostly popular in Emerging markets as a solution of paying for non-banked consumers What is relevant with cash option, is that despite being widely used in some markets (e.g., South East Asia) the volume and share of market is clearly decreasing as other Alternative Payments offer better value for both the Shoppers and the merchants
- Alternative Payments worldwide represent a minimum of 30% of online ecommerce transactions. With the recent growth of eWallets probably more. Alternative payments are still mostly domestic, except for a few regional and a few global solution There are hundreds of different Alternative Payments (no one in the industry agrees on a final number)
- The importance of AP, is not necessarily straight forward for a UK merchant, where nearly 80% of transactions are cards transactions. But selling cross-border in some countries, without accepting AP, it like selling in the UK without accepting debit cards
- This said, the AP landscape is changing rapidly. Looking at the UK, which historically was a market with a strong MasterCard debit product Maestro and the main wallet PayPal and Skrill, has turn into a market where you can pay today online with many more options. Although many of these solutions are actually substitute of each other (I use today my same Visa debit card, in both a PayPal account and an ApplePay account), this certainly makes it more difficult for merchants to know what AP to accept and how to accept it
- The landscape is also maturing, with Alternative Payment schemes being merged, being terminated or being rewampt, mainly driven by increasing competition and tightening regulation. All the individual European direct debit schemes have now being merged into the SEPA scheme, but this is being done progressively and many of them are still coexisting Laser, a local card scheme in Ireland has been terminated (it is actually costly for the domestic banks to run a domestic schemes), especially given the level of regulation within the EU Just to name a few
- Now that we have a refreshed understanding of Alternative Payments, I would like to take a merchant view and look at the Benefits for Merchants The various ways available to merchants to access/activate Alternative Payments, which are not necessarily obvious to everyone To finally spend time on the key Challenges that merchants face when they start accepting On the Benefits to start with and as natural consequence of what we just said, Merchants benefit from Increased reach : wider consumer base, access to new unbanked cardholders Trust as some shopper get access to their preferred way of paying. The website will typically look more professional and equipped (especially for first time shoppers) In most cases, Chargebacks (both friendly and unfriendly chargebacks) are less likely, are fraud level are lower and identification/security slightly lower. Now Chargebacks are not eliminated Conversion rate is a benefit yes, but I leave it in red as I believe it is challenged by what I call the ‘Payment wall’ issue (will come back to that shortly) and also depends on the capacity to connect the APs with the back-end, or with a higher level of integration to optimise the user experience and improve conversion (e.g., API or redirect) Some Payment options are cheaper, but not all of them. The more remote countries are covered by the AP, the more expensive the service usually is. Some prepaid cards cost up to 10%!! Fraud is not zero. PCI-DSS compliance is lower, regulations are less clear, phishing attacks, accounts are still used by fraudsters
- Historically, Merchant could connect to each and every AP in direct, it is still the approach of many large merchants having the resources in house to handle it. In this model, every AP is a Contractual relationship and a Technical connection. Technical integrator is the most common model out there, as it usually simplifies the technical integration Finally, some PSPs and some APs offer the possibility of a ‘Fully Integrated Distributor’ model, which requires only 1 contract and 1 technical connection. This is the most recent model, and does not yet cover all APs. One of the main constraint today, is that not all APs are available across all 3 models. Some are only available in Direct, some are not available in Direct and only via a Fully integrated Distributor, Some are only available with a Technical integrator. There is a lack of consistency, which makes it more difficult for Payment company to deliver value and for Merchants to capture value. Merchants who really want to access all the APs need to combine various model? Transition next slide As a Payment company, we had to decide and build the model that would maximise the value for the Merchants. We decided to look at the main constraints faced today by Merchants, and address them one by one into one product.
- As a consequence, Merchant require sginficant resources
- (B) On the legal part, our team spends a very significant amount of time reviewing contract with Russian, with Brazilian companies, and ensuring the right contractual terms is extremely time consuming and requires a very specific expertise.
- Using a Technical Integrator certainly helps limiting the integration required with the back-end of the merchant This said, the frontend ‘how’ and ‘what’ to display to the shopper is left for the merchant to design. This is a complex question? All payments available on a ‘Payment wall’, an intelligent but hard to design display of the payment options available?
- The ‘Direct’ model does not really address the challenges of the merchants and hence is typically mostly considered by large/corporate merchant who have the internal resources to manage such heavy operational set-up The ‘Technical integrator’ model has most/all APs available, and traditionally offers 1 joint integration Finally the ‘Fully distributor’ enable merchant to quickly, effectively and efficiently access Alternative Payments. If the technology is also supporting the ‘Checkout’ step, then merchants and shoppers both maximise their value. To conclude, there are 3 main considerations for merchants : APs are there and undeniably supporting sales, especially for cross-border transactions, and the landscape is becoming more crowded and more complex Merchants need to decide which model they want to follow to start accepting Alternative Payments, and should understand the pros and cons of each model More innovation can be and should be done on the Payment Service Provider side to help capture more value from the Alternative Payments for both Merchants and Shoppers. We strive do that at Checkout.com and hopefully we can give you a demo at our booth #732