Payment Provider FAQ

/Payment Provider FAQ
Payment Provider FAQ 2017-05-07T14:10:27+00:00

There are a few ways to get paid of use of products & services sourced online. The most popular form of payment for online transactions is Credit & Debit card acceptance. Well established as ‘ecommerce’ over the past two decades, this is the process by which your customer:


• Selected the products they want,
• Chooses the delivery method,
• your site calculates the final cost to the customer that
• Asks for them to supply their card details so that you can charge the card they provide the total amount for the order.

 

To achieve a secure, reliable, and smooth payment process, you will need to source payment services, and will generally need either 1 or 2 partners (depending on how much services a partner provides). The 2 main partners would usually be a Payments Service Provider (PSP, or ‘Payment Gateway’) and a Merchant Service Provider (‘MS’ or ‘merchant acquirer’). Some partners can do both and they can be seen as “Dual Play” payments providers; others will be certified to work with other single providers so you can avail a full solution. Some examples of the following are below:

payment method types

Payment services are competitive, Single Play providers will typically compete on volume, and “Dual Play” providers will often compete with a bundled price and joined up services. It is important to understand how partner’s price and charge for their services; “Single play” providers and “Dual play” providers charge differently from each other and this can be sometimes be to a merchants benefit and sometimes it can work against you.

Who is involved in Payments?

Scenario 1: Using “Single Play” Providers

scenario 1
Scenario 2: Using “Dual Play” Providers

scenario 2

 

Merchant Services Pricing (Single Play)
Merchant Service providers define their fees by calculating a percentage of the transaction (often known as the ‘Merchant Services Fees’); this % varies depending on the Type of card used and the region from where it is. So for example:
€100 charged on a Consumer debit card from Ireland would look like this:
€100 charged 0.85%, so Merchant Service Charge = €0.85
€100 charged on a Consumer Credit Card from America would look like this:
€100 charged 2% + 1% “International Card” Levy, so Merchant Service Charge = €3.00
Please note: actual rates charged are agreed between you and your chosen merchant services provider, and will be based on, among other things, your card turnover, your location, the products and services you offer, where you customers are located and the industry you are in.

 

There are usually other fees Charged also to be aware of , these can include PCI Fees (Compliance maintenance fees), Authorisation fees and the most impactful Minimum Monthly Fee (Minimum Monthly Fees operate apply when Merchant Service Fees on an account are below a minimum threshold )

 

Payment Service Providers Pricing (Single Play)
From the Payment service provider perspective the pricing here is usually volume based. By that we mean the volume of transactions not the size of each transaction. Compared to Merchant Service fees, this is far clearer – usually a fixed fee per month/quarter is levied providing a minimum amount of transactions included. For example:

€21.99 per month including 300 transactions
These would usually have excess fees included in the small print where by a “per click” (per transaction) fee is added on once you exceed the bundled transactions in any one month/quarter.
Other fees may include fees for storage of tokens* (safe storage of customer’s credit cards for re-use on the servers of the PSP)
* if a site has ever remembered you card details the next time you came back they will be using tokens (Storing the token against your account and the card details stored safely with the PSP to avoid risking the details being exposed to hackers)

Dual Play Providers Pricing

The Dual Play providers can be priced differently those who originate from Single play providers who merely add the 2 fees together. New comers to the industry (Stripe, Braintree) have created simplified blended pricing to make things simpler for new entrants into ecommerce.

Dual Play providers typically price on a per transaction basis, no monthly fees & no minimum fees.

As of 31/03/2016 the stated pricing of 2 of the largest new “Dual Play” providers was:
• Stripe –1.4% +€0.25 per transaction
• Braintree – 2.4% + €0.25 per transaction (first €50,000 collected is free)
This is a very tempting offer however as any developer will tell you changing provider is difficult to do and you will lose details like save customer card numbers in the move. Choosing your Payments Partner should be something you do for the medium term rather than for 3-6 months unless you agree ahead of time with your developer to plan to change as part of your project.

Other things to consider:

Customer Payment Experience

The Customer Payment Experience can be described as a lot of different things but the true definition is to try to make payment as easy as is safely possible. So that could mean ensuring the least amount of clicks, button presses and extra info required to put a payment through. One of the best ways to limit this is to build in the use of tokens. If you have a plan to store a customer’s details (things like billing address, Shipping address email and phone number) in a password protected account to speed up the checkout process, you should also consider building in the storage of tokens to retain the details of the card used in the first transaction. This would allow you to only have to ask for the 3 digits on the back of the card so as to process a payment for subsequent transactions. To do this securely you would work with your developer to ensure the card is stored on the first transaction with the PSP and a token saved on the account. Then when your customer comes the next time putting the payment details in should be as simple as 3 digits and click pay.

Other UI payment scenarios to take note of are Digital wallets. Apple Pay, Android Pay, MasterPass, Visa Checkout are all digital wallets operating in Europe today. They typically operate with a button on screen that opens up a login screen in a pop up window, from there you enter your login details, select the card you want to pay from and return to a success or failure page.

Apple Pay & Android pay would operate differently on your mobile device (fingerprint scanning rather than login details).
Introduction of these could help mobile conversion dramatically and help your customer complete sales on smaller devices where widespread use of the keyboard would be undesirable.

Fraud & Chargeback Protection
One simple truth in Payments is that by accepting cards the Merchant (i.e. you) carry all the risk unless you do something to change that situation. A key risk for you to manage is the risk of transaction chargeback. Chargebacks are, is in simple terms the Credit Card company (Visa, MasterCard, etc.) taking a payment back from you, the merchant, and giving it back to the card holder. This can be done for several reasons, I detail some (not all) of them below:

• Failure to deliver the Product or Service (Non Delivery of Goods)
• Product or Service not delivered as described (Arrived broken or differs from what was described online at time of purchase)
• Cardholder did not perform this transaction (Cardholder did not use their card for this Process – normally associated with fraud)

To defend a chargeback as a merchant is an expensive process most Merchant Services or Dual Play providers will have fees in place merely to defend a chargeback in 1 round*. Chargebacks often present as ‘last resort’ actions, i.e. where your customer feels entitled to a refund but has not succeeded in obtaining such directly. In this regard, it is always good advice to handle customer queries and after sales service to avoid customers ‘charging back’.

*1 Round = 1 reply -rebuttals are charged for also (this can be as high as €25 per round).
This charge is not charged to the cardholder

To process a chargeback a cardholder would have to request a chargeback on a transaction and to have to explain to the Card provider why they are seeking this refund, and will be required to present evidence that the refund is due to them according to the Terms & Conditions of the sale and that they received no response or an inadequate response. In the case of the Cardholder disputing that they were the ones who processed the order this is quite difficult to win and usually more expensive to defend than it is to concede. The Burden of proof is on the merchant and it could take several rounds to prove to a Bank that this was a verified customer.

3D secure (Verified By Visa & MasterCard Secure Code)

Seeking a 3D secure verification at time of transaction has a profound effect on the risk, firstly it shows the intent of a merchant to check a customer’s credentials as part of a transaction & it also tags the transaction with a result showing the Bank that this transaction has been verified. This is important as this means the merchant has had their liability shifted to the cardholder and cannot be subject to a chargeback based on the reason of disputed cardholder involvement. This means you shouldn’t be subject to any Chargeback fees and can be assured of keeping the amount as long as the Product or service is delivered safely & as described.

 

Other forms of fraud protection exist, in contrast to 3D Secure which is a way to defend a fraud case, prevention tools work mainly to protect against fraud happening in the first place. Fraud protection tools provide useful indicators of whether a card holder might seem untrustworthy however they are based on historical fraud and are subject to the changing methods of Fraudsters so are no guarantee of protection. Sometimes the best for of defence is actually to know your customer well and to keep a good eye out for those customers who don’t match the criteria.

 

If in doubt don’t ship the goods and refund the transaction, Banks don’t usually pursue Chargebacks on refunded transactions and as such you can save the fees on the chargeback by refunding early. Even if the goods are gone refunding is far cheaper response than waiting for a Charge Back to come in*.
Chargebacks are allowed up to 18 months after a transaction depending on Card scheme (Visa, MasterCard Diners etc.)
See an AIBMS’ Guide to Chargebacks here:
http://www.aibms.com/wp-content/uploads/2015/09/DIR3413_AIBMS-Chargeback_Handbook_V8.pdf

Dynamic Currency Conversion
Every time a card is used and there is a currency differential (Euro Bank account being charged a GBP price for example) there is a conversion completed that includes a margin.

 

For the vast majority of transactions, the conversion will be handled by the card schemes and the cardholders bank, using a rate & margin of their choosing; some banks will additionally charge their customers a ‘Foreign Exchange Fee’. Anyone who has been on holiday can attest to this when they read their online banking afterwards there is always a few lines showing original amount and the converted amount & the rate applied that day, together with a separate fee for the exchange (if applicable).

 

Dynamic Currency Conversion allows you, the retailer, to offer the customer a transaction in their own currency. Not only is this a value added service as the customer understands the price of their transaction; they also avoid any ‘currency’ surprise in rate or fees. This in itself can reduce chargeback risk. For those who like to know the eventual price of the item in their currency and would like to see it on their receipt (Expenses, Vat reclaim etc.) ensuring that the conversion is done before it reaches the cardholder bank can be another plus.

 

Dynamic Currency Conversion (DCC) Service is opt-in, meaning the customer is given a choice to be charged in their own currency at a fully disclosed daily rate and a margin, or to choose to pay in the standard currency (whereby it will be converted later by their bank). In either scenario, you, the online retailer will receive the amount they originally wanted to charge in your own currency. It is required by regulation that all of this be presented to the customer at the point of sale so this is usually something that needs to be a product feature agreed between a Merchant Services Company & the Payment Service Providers as there is a financial and a User experience requirement.

 

Those merchant services partners can provide a share of that margin back to the merchant typically of 1% of that transaction. PSP’s do not fund merchants and so therefore only facilitate the transaction and the commission is mostly paid by the MS provider who is allowed provide the service.
Dual play providers right now have not provided commission sharing programmes though some provide the DCC service for the cardholder. This is a source of revenue that is important to account for as Cross border trade with UK and non-euro countries in Europe can form the bulk of regional trade and all international trade would be subject to this. That commission could pay for the 1% international levy and in regional transactions could even cover the charges for the transaction and more.

 

When do I get paid?
Payment forms vary from provider to provider but the general rule is this:
Single Play Providers
Those who use merchant service providers directly (or Dual players run by Merchant service providers) are required to send the merchant the money within hours of receiving it from the card holders , so this usually means with SEPA that you get funded within 48 hours of the end of the day you did your transaction
Example: A transaction happens Monday 12pm then @ 12am Tuesday all the previous days transactions are processed, funding of accounts starts early morning and by 9am Tuesday all the funds are on their way to the client accounts, SEPA will then ensure the payment makes it by Thursday morning.

 

Dual Play providers
As they are not full acquiring banks they are not required to settle in the same format and can vary from 2-7 days wait on transactions, this doesn’t mean they won’t pay you every working day only that you could be waiting up to 7 days for a particular payment.
Example: A transaction happens Monday 12pm then @ 12am Tuesday all the previous days transactions are processed, the Dual Play provider then schedules payments according to their schedule (3-7 Days after transaction day) so Thursday though to Monday you could see the transaction amount with all the other amounts collected that day land into your bank account.

Furthermore, some dual players will have an ‘on request’ settlement to bank – for example, PayPal basic plans do not automatically settle to your nominated bank account until you request them to do so.

P1
(Revenue < €10K, ATV < €100, Annual transactions < 75)
As a P1 given the low transaction volume you will most likely be using a platform like Amazon, EBay or Etsy to sell your goods. On those platforms you either use their payment services or link a personal or business PayPal to the account and accept payments through that means.
Your rates will be on the high side but you will be spared the need for any single players and could be fully serviced by the system itself like in the case with Amazon. It will also be relatively easy to get set up, for example, there are lighter requirements at the outset in relation to documentation, etc.

 

P2 Own Website / P3
(Revenue < €30K, ATV1 < €100, Annual transactions < 300)
As a P2/P3 given the low transaction volume you will most likely be using your own system sell your goods on a platform like Squarespace or Shopify. Squarespace is partnered solely with stripe (meaning you will only be able to use Stripe for your payment options) however Shopify has numerous options for both single and dual players.
Given the low annual number of orders and the low revenue you would want to keep the lowest cost solution and using a dual player with no minimum charges allows you to “pay as you go”.
They will provide both services have a simplified application process and if you aren’t selling they aren’t charging you. As your costs will be measured proportionately to your earnings they will never get out of hand and slow months are cheap months. Settlement will be up to 7 days, which may be an issue if cash flow is critical; however, in many cases, P2 turnover will not yet be a primary income source, and so cash flow is often not so time critical.

P4
(Revenue < €75K, ATV1 < €100, Annual transactions <750)
As a P4 given the relatively low number of transactions per month you may find Single play players provide value in the transaction cost but the minimum charges mean you don’t get value during your slower months. Dual play providers with their proportional pricing will mean you get steady value for the service no matter if it’s your first transaction this month or your 30th.
It would be important to note though if you intend to grow beyond this level the more value you will get from the single player partners and transaction costs could start tipping heavily in their favour.
Cost to change from 1 payment provider is often free (though account opening charges can apply) but the cost your platform developer may charge to configure your platform to work with a new supplier can equal or exceed year 1 savings. Forward planning here can really help.
It will also be important to understand settlement cycles and chargeback risk as your business is now of significant size.

P5
(Revenue < €150K, ATV < €100, Annual transactions <1500)
As a P5 the number of transactions per month is now over 100 and the costs of Dual players now exceed the relatively fixed costs of the single play providers. Every transaction from now on is going to save you money and the time to fund is far quicker now too.
Important factors to remember is in Ireland ecommerce is dominated by Debit card spending when the ATV is less than €1000. The figure is close to 80% of transactions are completed on Debit card. Single play providers here charge half of what Dual players charge to settle those cards and that starts to add up quickly.

A good exercise here is to imagine what amount of transactions you will take in a month and to divide it by 100 to see what 1% of your monthly transactions costs if that figure is €50+ then monthly minimums will not be a problem for you and you can start saving on every transactions
Single play providers in such as case could have costs that are 50% of Dual players at this stage. Earlier development choices made at the time you were P1 or P2 may be costly; in fact, some players who are very successful with smaller business may not even be able to continue providing the same services to you as turnover grows – as you grow there are greater regulatory requirements, which may mean you are forced to change how you process – or who you process with.

P5+
(Revenue < €500K, ATV2 < €100, Annual transactions <5000)

 

As a P5+ the number of transactions per month is now over 400. You should be moving up to higher plans on your PSP and on more attractive rates on Card transactions. It will start becoming important to see where you transactions are coming from as you may begin to incur International levies (This is for non-European regional cardholders (US, ASIA, Latin America and Africa)

 

This 1% will be added on to each transaction whether its Debit or Credit so you may seek to implement Dynamic Currency Conversion (DCC) so as to offset the costs of transacting with those cards.

 

From a fraud perspective 3D secure is less prevalent outside the US and Western Europe so you will have less protection from Fraudsters. Delaying Shipping by a couple of days could allow you to retain goods before being informed by your acquirer that a transaction was fraudulent.
Manual review of these orders is also recommended to ensure the card holder details match the location of the shipping. Remember if in doubt refund and retain goods. Sometimes reach out with an email or phone call to ask a few questions can also help put your mind at ease, vigilant retailers are not immune to fraud but they do avoid it far more than those that are not.

 

Important factors to remember is in Ireland ecommerce is dominated by Debit card spending when the ATV is less than €1000. The figure is close to 80% of transactions are completed on Debit card. Single play providers here charge half of what Dual players charge to settle those cards and that starts to add up quickly.
P5++
(Revenue < €1 Million, ATV < €100, Annual transactions 10000 +)
As a P5++ the number of transactions per month is now over 800+. You should be on the higher plans on your PSP and on more attractive rates on card transactions. It will start becoming important to see where you transactions are coming from as you may begin to incur International levies (This is for non-European regional cardholders (US, ASIA, Latin America and Africa)
This 1% will be added on to each transaction whether its Debit or Credit so you may seek to implement Dynamic Currency Conversion (DCC) so as to offset the costs of transacting with those cards.

 

From a fraud perspective 3D secure is less prevalent outside the US and Western Europe so you will have less protection from Fraudsters. Delaying Shipping by a couple of days could allow you to retain goods before being informed by your acquirer that a transaction was fraudulent.
Manual review of these orders is also recommended to ensure the card holder details match the location of the shipping. Remember if in doubt refund and retain goods. Sometimes reach out with an email or phone call to ask a few questions can also help put your mind at ease, vigilant retailers are not immune to fraud but they do avoid it far more than those that are not.

Important factors to remember is in Ireland ecommerce is dominated by Debit card spending when the ATV is less than €1000. The figure is close to 80% of transactions are completed on Debit card. Single play providers here charge half of what Dual players charge to settle those cards and that starts to add up quickly.