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Payments are sexy again. But are they still a commodity?

By December 2, 2021No Comments

The past and the present

It’s 2005 and I’m working on an online retail project selling men’s clothes. We’re trying to find the best payment provider and back then it was somewhat harder than it is today due to the lack of options. The retailer is based in Hong Kong but also has a UK entity, PayPal was a ‘thing’ but it wasn’t available in the software we were using. We found the original incarnation of 2Checkout to enable end customers to buy from the website using cards and away we went. There wasn’t much choice, who knows what fees were being paid, never mind the need to move money around the world, that was nearly 17 years ago! Oh, how times have changed, card payments are everywhere; as far as the end customer is concerned, the same service, same price, with the odd exclusion of AMEX. Even for merchants, the payment service market can now seem like a myriad of similar offers, which in turn has led to a race to the bottom on price. Sure, merchants just want the cheapest price… 

What merchants really want

Or do they? I speak to many merchants every week and many of them are certainly price sensitive, some of them in certain industries and in the latter stages of their career are aggressive on price, but in my experience, they are a dying breed and perhaps card payments along with them. I can tell you that the first thing that merchants are looking for is availability in the platform that they use (just like me 17 years ago), some of them are even willing to pay these platforms tens of thousands of dollars to get the service enabled, which in most cases erodes any fee-saving they might have spent blood and tears negotiating on. That is only after they’ve found a provider that will give them what they really need… And that is good customer service, it’s not until you’ve been selling and had your money locked up or your account disabled or even repeated transactions fail that you become aware of the need to speak to someone at your payment provider. Fraud checks are a necessity, failed payments are a reality but someone to talk to resolve these issues is not a commonality it would seem. 

Customer Service is a differentiator

That’s our first point to raise, there may be more and more payment service providers, ISOs, PayFacs, Neo-banks etc in the market but they are all the same if they can’t serve their customers well, they’re all bad and you get what you pay for. With a service that supports such a sensitive topic as payments, you would have thought that greater transparency and customer support would be an obvious requirement, but it really isn’t. As payment companies grow, compete more in a crowded market they look to automate their human interactions, the topic for how they can improve is for another time, but one thing is clear, that customer support and success is not the same across the board and it’s the number one reason merchants approach us looking for a new service provider.

Features / Payment methods differentiators

In the last few years, my leather wallet has started gathering dust, a lonely vessel left on the mantlepiece now a part of the furniture lucky enough for the occasional outing in my backpack just in case my driving license is called for (BTW driving licenses and passports in digital wallets, backed by blockchain surely!). The reason my wallet is no longer used is because I have all my payment methods in my mobile wallet or I use Google Pay/Amazon Pay/PayPal on my laptop, it’s convenient, why would I want to get my card out and type long numbers into a screen!? Believe it or not there are some big-name payment gateways that still don’t accept GPay, Apple Pay and PayPal, and you can forget about them incorporating the latest Buy Now Pay Later method. We’re seeing merchants and platform providers needing multiple relationships with payment providers so they can offer the options that the end customer wants, driving up conversion rates through convenience. These alternative payment methods are also beating card payments up due to their lower fees and increasingly convenient checkout process. Card payments will soon become the alternative payment method and already are in parts of Europe and India. The market has really been shaken up with new payment methods coming out every week and as we know the regulatory bodies have had to wake up. It seems they’re still having their breakfast and once they’ve read the paper (analogue reference intended) might start to impose some regulations on the new credit providers. One thing is clear that the new payment methods, fee structures and convenience that is now available to consumers and increasingly businesses payments are becoming sexy and no longer a commodity.

Connected systems

I’ve already said it, but not every payment service provider is where merchants need them and they are not connected to the systems the merchants use in a way that improves their business. We’ve seen payments connected to things like Xero for invoices payments and reconciliation purposes, whilst these connections are good they are still scratching the surface of what’s possible, they lack functionality and transparency. Whilst other platforms have no connectivity at all and payments is still considered an offline back-office task of transferring money by logging into your bank account, where is my weird little banking login calculator thing anyway… I heard a couple of payment providers recently waxing lyrical about their upcoming pay by link text service that was nearly ready after many years of development. Just say that again to yourself out loud, PAY BY TEXT. 🤣 I just hope it’s compatible with Whatsapp, that’s all I’m saying.

What is certainly interesting is the opportunity that neo-banks might provide. They already have the customer base, the opportunity and cash to launch all-in-one, convenient payment services to merchants. Their challenge is then about go-to-market and getting that functionality embedded in the platforms that merchants use. I can certainly see someone like Revolut heading in this direction and winning, but time is against them, I feel they’re still a bit rigid in the movement. It’s also a warning to software that want to offer their own payments services, not only are there greater responsibilities, dubious upsides but there’s the chance that you’ll be slower to keep up with a fast-moving market because it’s not your core competency. Without a doubt, the future of payments is via platforms and so the platforms that are connected to your payments services are going to be a differentiator, therefore with more payment products and platforms appearing, payments are no longer a commodity, they’re not the same and they’re not everywhere.

True price as a differentiator

Finally, before we conclude let’s talk about money. ‘My payment provider is offering me 0.5% can you beat that?’ As I mentioned at the start, the commoditisation of payments meant a race to the bottom on price. For smaller merchants the fees are really just the list prices offered, for those with more bargaining power prices can range from provider to provider and across alternative payment methods. But the main point I want to draw out is about holistic cost and the total cost of ownership when it comes to payments. When considering the true cost of a service provider and the products that they offer you need to think about:

  1. The processing fees
  2. The hardware fees
  3. The cost saving of connected systems
  4. The increase in conversion

Many merchants are making dumb choices, they’re not considering a holistic cost or cost vs benefit. Many new payment players offer some serious efficiencies and increase in conversion rates whilst reducing chargebacks. For platforms, what’s the cost of not having the right providers, what value is payments really adding if you’re not able to provide anything but a transaction. Shuttle provides platforms and their merchants with centralised payments views and insight into what’s happening.

A quick word about crypto

It’s still not hit the mainstream and isn’t available as a payment method for many but it’s coming and it’s sexy, I guess. Still a form of wallet and often backed by traditional currencies, but no doubt the crypto economy will gather self-sufficiency soon enough. Again how’s it going to go to market and by who? Somebody ask Jack Dorsey for me.

Payments are no longer a commodity

They’ve become a differentiator and it’s not a one size fits all anymore. It’s likely that merchants will be utilizing many software tools in the cloud whilst using multiple payment services to increase checkout conversion and keep the cost of moving money down. There’s an opportunity for payments to be embedded and baked in with greater features sets to software and those that are willing to enable that, we believe, will be the winners. Of course, that’s what we’re here to help with, the right payment services in the right places, increasing transparency in muddy market. Platforms that want payments features, look no further, payment providers that need go to market and embedding get onboard – your customers expect it.