Processors often overpromise, leaving businesses holding the bag

Register now

Your business is growing – it’s exciting and you are ready to take the next step and start selling online or increase your existing online sales. Before you jump in, there are some important factors to consider when selecting or changing a payment provider.

It’s not as simple as just accepting credit cards or PayPal; there are things to consider so you can select a provider that will allow your business to scale easily (up and down). The last thing you want is to realize several months in that your payment provider can’t support your needs.

Let’s take a look at what you need to know when shopping for a payment provider. Here are some common sales tactics you may hear as you shop around.

Most payment providers leave you responsible for conversion rate optimization. So if they say, “we’ll increase your conversion rate”, don’t be shy about asking how. Besides ordering process and shopping cart optimization, which you may have to do on your own, look also at what payment methods are being offered at a country level. The more local payment options you have available, the higher your conversion rate.

Just like the budget airlines that catch your eye by offering the lowest-cost ticket around, it’s the hidden fees you must look out for.

The airlines get you with taxes, preferential seat costs, fees for baggage, snacks, etc. Payment providers aren’t charging you for checked baggage but they do have several additional or even hidden fees they may add on to basic processing costs. Such fees include foreign exchange mark-ups, international surcharges, chargeback fees and professional services fees for the smallest of jobs you require. It’s important to be aware of and include these fees when calculating your ROI for a payment processing provider.

A prospect may say they handle chargebacks and refunds for your customers but ask for transparency so you can limit your loss. In general, processors aim to discourage refunds and chargebacks and they will charge a handling fee (potentially with a mark-up on), to protect against potential loss. However, there is a difference for your business between refunds and chargebacks. Ask questions about how they handle each item and read all the fine print regarding fees, and processes for refunds and chargebacks. Understand what you can do, as a merchant, to reduce both refunds and chargebacks.

Others may also tell you it’s easy to scale. That’s not always as easy as advertised – implementation of partner services are often necessary to get the scalability you require. Managing your e-commerce business already takes up a large amount of your time. Ask yourself if you have the bandwidth for the additional integration time and costs that come with more contracts, fees and risk evaluation.

What about your business’ revenue from recurring payments – are payment providers taking more fees for recurring transactions? If they do support recurring online payments via a wallet or a third party partnership, this brings more contracts and further implementations for you. Inquire also about revenue recovery tools and services that help increase authorization and renewal rates - some providers may not offer these.

Also related to subscription or recurring businesses, you need to think about payment data portability. This is hugely important when you are considering switching from one provider to another, and you need to understand what rights you have and what data you can move, what compliance issues you need to consider and what are the costs associated with a move.

There are other things you should think about before signing on the dotted line. These include items such as contract termination clauses (fixed fees, contract date, minimum transactions numbers), subcontracting of payment services (how does this impact you, if your payment service provider has separate contracts with acquirers, for example).

With a deeper understanding of what payment processors are trying to sell, you will be prepared with the right questions to select the right provider(s) for your e-commerce business.

For reprint and licensing requests for this article, click here.
Payment processing Retailers Digital payments Payment cards Security risk ISO and agent