Choosing Payment Service Provider - 5 most important criteria

The competition in online retail is still growing. Not only does it offer attractive solutions and products for online shoppers, but online payment systems are becoming more and more important. This are raising competitive advantages and conversion rates when properly implemented. Criteria such as acceptance of payment methods, transaction costs and minimizing missed or failed payments must be weighed as pros and cons against one another to find the right balance.

Payment service providers (PSPs) offer online retailers a helpful solution to complicated payment issues. PSPs bundle different payment methods, fulfill necessary requirements such as PCI certification and seamlessly deal with the development of payment traffic. In order to choose the right PSP from over 900 providers, online retailers must pay attention to the following criteria.

1. The large number of payment processors and PSPs

The payment service provider should be available to all clients who wish to access them. In Germany and surrounding countries, payments by billing, through Paypal, VISA and Mastercard credit card payments, bank transfers and direct debit are available. E-Wallets such as Skrill, debit cards, mobile payments on platforms such as mpass and even prepaid cards such as paysafecard are sometimes available.

Development of international payments

Businesses that sell around the globe or will eventually launch internationally must branch out and seek PSPs that consider various payment processing systems in different countries. According to a study by the European Commission, 60% of all cross-border transactions cannot be completed because payment methods available in certain countries are not offered by online retailers. Therefore, it is very important to choose payment service providers who keep this in mind when helping your website go global. For example, if a retailer would like to open a webpage in the Netherlands, it is important to adapt to the most popular payment platform in the country, Ideal, which 80% of all residents use in online transactions. If the retailer does not offer this payment method in their payment mix, they will lose a huge portion of potential sales revenue. It is important that businesses consult experts when choosing payment service providers in order to avoid losing any sales revenue when expanding abroad.

Mobile payment offers

As the number of smartphone and tablet users continues to grow, payment methods are starting to adapt to the change in behavior of consumers. Customers are now demanding efficient, uncomplicated online shopping platforms they can use while on the go. Online retailers now have the possibility to raise their sales by appeasing mobile users through PSPs that offer Check-out. Check-out can be adapted to mobile mediums and not only offers a high recognition value, but also offers retailers mobile device optimization for their websites. Mobile payment behaviors such as paying over SMS or QR-Codes are also available and sensible for special target groups or an omni-channel strategy for integrated shopping.

2. Technical requirements and the implementation of payment service providers

One of the most important criteria when choosing a PSP is your existing shop software and business processes. It is most sensible to choose a service provider who already offers a service module for your previously existing software. Normally, this is no problem for most online retailers. Sometimes it can be more difficult to integrate current shop systems and in-house developments. It is also worth looking at further interfaces such as ERP interfaces.

Integration options currently include iFrame connection, forwarding (also known as redirect) or API connection.
A more secure method of transferring payment data is using an iFrame connection. Data is directly added into a secure check-out formula from the payment service provider within the iFrame, a page on the website of the retailer. The iFrame can be adapted to different shop layouts in order to suit the corporate identity and already established website of a retailer.

Just as secure as the iFrame, another good option for retailers is a forwarding service, also called redirect. The customer leaves the webpage of the retailer upon payment but is forwarded to the secure website of the PSP, where the payment will be entered and processed.

A successful way of completely integrating payment into a retailer’s website is using an API (application programming interface) connection. The customers leave the website of the retailer after the payment process is complete. The retailer saves the payment information of the customer in their own database and can send it on a need-to-know basis to different PSPs. Additionally, the API connection offers many possibilities for control and adaption, as well as provide options for integration, but retailers must comply with PCI certifications.

3. Payment development security

Payment service providers independent from banks often offer a BaFin certificate. This certificate, from a large, European financial supervisory authority (the Bundesanstalt für Finanzdienstleistungsaufsicht), allows PSPs to establish escrow accounts at banks all throughout Europe, in order to accept payments. When payments from customers are missing, PSPs are protected in Germany or in the countries where they have their established escrow accounts.

In order to offer credit card payments, PSPs must be in accord with the worldwide data security standards of the Payment Card Industry Data Security Standard (PCI DSS). These standards ensure that credit card data from customers is protected from fraud or theft. Through choosing PSPs with this important certification, online retailers do not need to attain this important certification themselves.

4. Services provided by PSPs

Payment service providers offer various services that differ from provider to provider. Therefore, businesses need to have a clear idea in mind of what services are important to them and the growth of their online shops. For example, for new and growing businesses, addressing topics such as expansion, markets and the possible changing of providers is incredibly important.

Subscriptions and recurring customer functions

Many payment service providers offer services that include recurring payment processing. This is especially attractive for retailers in industries such as food retailers and media. In cases of subscription or recurring payment processes, customers should always be able to access a real-time overview of their payment statuses. Subscription models should also be available for payment methods beyond credit cards. Popular payment processes including Paypal and direct debit should also be available for subscribers. Moreover, payment service providers may also include a recurring customer function that saves payment data of customers that can easily be retrieved when they would like to make a repeat purchase. This guarantees a quick, pleasant experience when ordering products.

Support services

For certain industries and customers, the availability of customer support is incredibly important. There are huge differences in relation to scope, language availability and costs. For certain shop owners, it’s not only important to have customer service support available to them, but also to offer a support line for their shop customers. Certain PSPs take this into consideration and cover all aspects of customer support services through full service contracts.

Risk protection from missing payments

Online retailers are at risk of losing or never receiving payments from customers. According to a study by ibi research, 3 to 4.5 percent of direct debit payments end up costing extra for warnings and debt collections. Payment service providers usually offer an assumption of risk service that protects against these extra fees, which can become costly over time. Retailers can also choose to add additional fraud prevention modules to their shops, which are provided again by PSPs. PSPs monitor the amount of payment rejections, chargebacks and other payment problems in the shop and adapt their program to best protect the retailer.
Providers also offer address, credit and even blacklist checks of customers for shops. It is important to remember that a high payment refusal rate can also end up leading to a loss of profits.

Further service offers

There is a number of services that payment providers offer in addition to their main services. This is dependent on a store’s transaction volume, the payment behavior of the target group or other information that the receivables management shares with the payment service provider. Through this, the provider takes over the billing, payment monitoring and debt collection notices, which they then forward to a debt collection agency if necessary. Certain service providers also offer factoring and financial services such as business accounts and currency conversion management.

5. Contracts and pricing: Fees for a PSP

The last important factor in choosing a PSP for you is, if course, the available contract and pricing for cooperation between the PSP and your online shop. The cost models include both fixed and varying fees. The costs are dependent on the expected sales revenues and the amount of transactions in the online shop. Normally, PSPs take from 1.5 to 3 percent of the revenue of the shop, but the percentage may vary and be as high as 9 percent. For small transaction volumes, providers also offer flat fees that take a certain amount from each transaction. In addition to variable fees, monthly pre-determined costs and certain one time setup fees can occur and amount to up to 500 euros. Transaction cancellation fees and currency conversion rates may also apply. Basically, the fees will be cheaper as the sales revenue increases and the contract is long-term. Certain providers offer “test drives”. These ensure that your shop is compatible with their provided interfaces, before you are locked into a contract with them.