If you want to have a long-term success story with your online store, working with a payment service provider (PSP) is essential. This is the unanimous opinion of the e-commerce industry, which I hear time and time again as the Head of Product Management. The arguments do sound coherent: online retailers will in the best case only conclude a contract, the PSP on the other hand processes all the standard payment methods, and sometimes also undertake receivable and risk management.
I can only agree with my colleagues, ultimately even complex security requirements of credit card companies are placed in the hands of experts. Another benefit of working with a PSP is the technical link, which is comparably simple for the standard payment methods such as credit cards, direct debit, payment on account or PayPal and is always kept updated via a plug-in solution.
When it comes to choosing the right payment service provider, many retailers quickly lose the holistic view in all these service benefits of the costs that are incurred by the collaboration. Like any other service provider, a PSP will naturally also be rewarded for their services. In addition to a monthly fee, companies will generally be asked to pay for every transaction. Although we are only talking about a couple of cents per transaction, this can very quickly add up to a significant post on the balance sheet depending on sales.
At a trade fair a couple of days ago, I heard two retailers talk about these costs and they agreed that they had knocked out the best quote for the collaboration with their payment service provider. Both have a contract with the same PSP and pay exactly the same fee for the transaction for each payment method, although they operate in different industries: one of them sells high end wines, and the other has been operating in the fashion industry for many years – two completely different prerequisites for discussion they both had.
It may sound funny at first, but the costs per transaction should always be highly dependent on the preferred payment method. If we compare the two case, it quickly becomes clear what I’m getting at: while the wine retailer explained that customers of his online store pay with approximately the same frequency by credit card, direct debit and on account, this was completely different for the other retailer. Because customers in the fashion sector want to try on the t-shirt or trousers first before paying, the proportion of payments on account in this industry is very high. This was also the case for the retailer with whom I spoke at the trade fair and whom I then advised to think about changing payment service providers.
The fact that the PSP is charging the same fees per transaction for payment on account to both retailers is outright brazen. A fair service provider would take into account the mix of payment methods and also shape the pricing model accordingly. Charging a retailer in the fashion industry, where the rate of returns is particularly high, the same amount of money for payment on account as a retailer in the food industry is an absurdity at which I can only shake my head. To save hard cash, companies would be well advised to request a transparent pricing model, otherwise they will find out later that they have fallen into a cost trap.
Our pay-after-delivery solution AfterPay provides a direct link, but even we work with payment service providers in order to be able to integrate our flexible payment solution for payment on account, direct debit and instalment packages with other payment methods. Of course we have no control over the pricing policy of our partners, but we only cooperate with service providers who really put their cards on the table and who guarantee a technically flawless link of all relevant payment methods tailored to the relevant retailer, at fair prices.
In the next few week, come back to our blog to find out why practically no online retailer can do without a PSP. Or download our new Business Insights Report and find six tips for choosing the right payment service provier.
Head of Product Management AfterPay DACH | Arvato Financial Solutions