I have had the unique opportunity over the past few years to work on multiple initiatives that make it easier to accept payments online. Once merchants/partners begin accepting payment the focus invariably shifts to thinking about monetizing and optimizing payments. In this talk, I will think about how to bake in monetizing and optimizing payments and make it the forefront of your thought process while choosing a payment service providers and how doing so becomes essential as you grow and monetize your business and ensure that no money is left on the table.
Rahul Dighe:
Hi everyone. My name is Rahul. I'm a product manager at PayPal and have spent the last two years in the payment industry. Today, we'll talk to you about optimizing and monetizing payments. The content that you see in this presentation has come about with my interactions with different merchants, just seeing how merchants and other payment users who are integrating with payment providers, how did they react with some of the best practices that we put out there?
Rahul Dighe:
Hopefully what this talk gives you is some sense of how you can take the payment integrations that you might have today and look forward to optimizing and monetizing it. So as you might imagine, the whole goal of this presentation is to make sure that you don't leave any money on the table. This is predominantly aimed at folks who might have had a payment integration that they started out with, but are really finding it not meeting their needs today.
Rahul Dighe:
Or it could be some of you who might be looking to start accepting money or don't know what to do next. All of us pretty much know how to pay, but accepting money is a whole different ball game. Any sort of a payment provider that you bring onboard, integrating with them, getting the first payments coming through is just a start. It's a long process and hopefully my talk today educates you around some of the questions that you can ask, some of the things that you can go eyes wide open, so that you're not surprised when your first bill comes in or the first dispute comes in, or you realize that you are leaving a lot of money on the table, just because you have not optimized your payments here.
Rahul Dighe:
So the first thing is presentment currencies. So imagine, a lot of us would be in the US, you're shopping on a site that's based out of France, for example and if that site is predominantly catering to local users then you might see all the prices listed in euro. Now imagine browsing on that site and instead of seeing prices in euro, you see it in dollars and not only that, you can actually pay in dollars and you know exactly what you're going to get on your bill without having to worry about the exchange rate. That makes for a great buyer experience.
Rahul Dighe:
Now, if that's the sort of experience you want to get on your site, you need to make sure that the provider that you work with supports this notion of being able to present the currencies that is local to the buyer. So you as a merchant might have your bank account or your merchant account just in dollars or just in euros, but that shouldn't stop you from me able to present your currencies in the choice or in the currency of the buyer.
Rahul Dighe:
Now, a couple of things to note as you look to do it is to make sure that at the end of the day, you as a merchant, are going to be getting a conversion rate applied to move the balances that the buyer paid, like say in euro, to your account which is in dollars. So you need to be very cognizant about what you're going to pay in. Again, the other bit could be that you probably are not as sophisticated in trying to quote prices in different currencies. A good payment provider can help you provide real-time [inaudible 00:03:36] or give pricing information so you sort of know what you're getting.
Rahul Dighe:
The other thing to note is there's almost like a war between different payment providers when it comes to the number of presentment currencies that they offer. Now that's a great thing if you're buyer's on in 150 plus countries, and you actually ship to 150 plus countries, but for more practical purposes, what you really need to make sure is that the currency is where you want to do business for your buyers, so coming from where to ship your goods is really where the payment providers provides the right options for you.
Rahul Dighe:
Now presuming you get to a point where you're presenting your prices in the currency of the buyer. Why not take it one step further? Why not show them the local methods that they are familiar with? Out here in the US, we are used to paying with credit cards or PayPal or Apple Pay or Google Pay, but that's just not the norm internationally. And so if you know that your buyers are coming in from a particular geography, it's far wiser to provide them the option to pay in their local payment materials that they use there.
Rahul Dighe:
Now, one thing to note is depending upon how international your business is, you might end up with a whole bunch of payment methods that a buyer could choose from, and that becomes an extremely confusing experience for the buyer. So what you should be good at or your payment provider should be good at is to be smart enough to present the right payment party at the right point and the right interaction. And so that's an absolute key, especially when you're adding a ton of new payment metrics.
Rahul Dighe:
The other thing to also note is, depending on when you had your first payment integration, it might have been just paid with a card in mind and in the credit card world or the debit card world, we are used to this notion of an authorization, a capture and a refund which may or may or may not be the case when it comes to such local payment methods. They are predominantly bank based and so operate in a very different board as someone who's used to accepting credit cards would normally be cognizant of.
Rahul Dighe:
So it's just things to keep in mind, as you try to bring this on. Go in with eyes wide open. These are not cards. These are not credit cards, debit cards that you accept. So you need to be open to allow [inaudible 00:06:08] architecture to evolve based on the payment metrics that you're trying to bring in.
Rahul Dighe:
Now, you presented it in the right currencies, you added all the payment metrics that you could, but the reality is, not everyone uses these payment methods or even if they use those payment methods, they may not have money in the bank, or they may not have enough credited on their credit cards. A lot of millennials in particular are used to getting financing at checkout. You must have heard that term, buy now, pay later, or you might have been presented with installment options or credit options at the time of checkout.
Rahul Dighe:
What I encourage you to think about is, think beyond just accepting payment methods, also look into how you can add providers. PayPal Credit is a great example that allows someone to sign up for financing, get approved and make the purchase, all at the time of checkout. The thing to remember is, depending on the type of payment provider that you work with, not all offers, not all APRs, not all installment schedules really appeal to everyone. An APR offer or an installment offer that works for the higher end watch merchant, for example, might not be the right for you.
Rahul Dighe:
So it's super important that you think about, or at least experiment with different combinations of buy now pay later offers and pick the one that's right for you. The other thing to also note is, if you're a cashflow positive business, or you have a lot of cash reserves, you can also pitch in and finance the buyers. You can use these providers as a technology offering, but you pretty much are taking all the liability for this. And there are pros and cons for doing everything, but it's something to absolutely keep a note of, especially if you can take on liability. That means you could lower the approval standard, might want to offer more, depending on what your risk appetite is.
Rahul Dighe:
So all those options are important to consider, particularly when you're looking to bring in a buy now pay later payment provider report.
Rahul Dighe:
If you are accepting cards and if you're new to it, eventually you would realize that a lot depends on how many approvals you get through. So to give you an example, if you try 100 transection and 100 different credit cards and only 90 of them pass at any point of time, then your approval rate is 90%. Now that's completely leaving money on the table because some people might try with a different credit card in the first one that it worked to or a different debit card or they use a different payment method, but that cannot be guaranteed. So you need to make sure that your approval rates are as high as possible.
Rahul Dighe:
If you go internationally particularly, you would notice that your approval rates go down dramatically and at that time, when you should really think about bringing on local acquiring, you also need to keep cognizant of the fact that if you are doing recurring billing or you have charges that you submit to cards on a regular basis. So you can pick the interval or you can retry them at different points of time. And I'll have more to see on this later.
Rahul Dighe:
Digital wallets like Apple Pay, Google Pay, PayPal Wallet have an in-built experience that allows one to choose a different card in case one fails. So use those to your advantage. And finally, if you feel like your authorization rates or approval rates are not as high as they can be, it's definitely time to go out rate shopping. Not every payment provider is going to be able to give you authorization rates at par for all scenarios, all nuances or markets. So it does create a more [inaudible 00:10:09] shopping.
Rahul Dighe:
The other thing to note is to design for an experience that takes into account declines. I've seen a lot of merchants obsess about getting sure that a buyer goes to the payment flow, but the reality is, what you really need to also ensure, and probably work twice as hard on, is what happens when someone gets declined, because that's an unpleasant experience that you can use to your advantage. So the most important thing, or the most important mistake to avoid, is to start thinking about declines as a primary use case, and really try to optimize it to the best you can.
Rahul Dighe:
Digital wallets, again, provide a more seamless experience because if one card fails, a buyer doesn't have to reenter another card, he or she can just use another one and more. The third thing to also note is integration errors or errors because of API requests are completely avoidable. So work with your developers to make sure that your integration is tested thoroughly because the worst case scenario is when buyer types in a particular card number but he never even reaches a processor and gets declined much [inaudible 00:11:30].
Rahul Dighe:
So it's very important that you spend the time making sure all your test cases are covered and at least try to remediate areas that happen which are completely avoidable. For billing and recurring payments, as we talked about a bit before, most, for example, the US people get paid typically on the 1st and 15th, so planning your recurring billing on that date gives you a higher chance of approval as opposed to applying it on the 10th or the 20th or the end of the month.
Rahul Dighe:
Now, every region and every geography, every buyer profile might have a different way to optimize it. So I would leave it personally to your payment provider, if they're sophisticated enough, to really look at how best they can optimize those declines for you, particularly when recurring billing is a must.
Rahul Dighe:
No one really wants to pay much more or anything more than they have to pay for, but payment providers don't make the bulk of the money. The bulk of the money is made by the folks that issue the card and everyone else down the chain as well. That's some of the things to remember, and these are typical pricing models that you might come across when you're trying to sign up a payment provider. One is your basic flat rate or blended rate pricing that you pay a 2.9% plus 30 cents for any transaction. There are tiered pricing, the whole idea being that depending on the kind of card or certain other characteristics, a transaction will be based on different tiers. Like low, medium, or high, each provider [inaudible 00:13:14] differently.
Rahul Dighe:
And finally, the most transparent of them is the IC++ where you get complete visibility in the pricing for each of your payment intermediaries. Now, the thing to really look for is don't start with the headline rate, don't start with the payment provider that gives you the most standard, cheapest standard rate, because ultimately if you grow your business, you really want to get on to a processor that offers IC++ because that ends up being the most transparent pricing to the [inaudible 00:13:51].
Rahul Dighe:
Also don't hesitate to negotiate, particularly if you have a high volume business and you're ready to make long-term commitments. And if you have a provider that can like, you're satisfied with authorization rate, the payment methods, the presentment currencies, there's really no harm in trying up a long-term contract if you're going to get a better rate.
Rahul Dighe:
And finally, there's certain cards, there's certain issuers, to whom if you send enhanced data, and this is typically known in the industry as level two and level three data, that provide more information about the transaction, like what's the line item. Think about the invoice that you give to a buyer. If the same level of information is saying to your payment processor, there is a chance you might get a discount on your existing rate, and that might both be your advantage.
Rahul Dighe:
Chargebacks and disputes are just a fact of life, it's the cost of doing business. The best way to think about it is when you buy something from a merchant, instead of you calling the merchant back in case of any concern, maybe the merchant charged you twice by mistake, or the merchant just sent you something that you're then think you're buying. Instead of calling the merchant, if you end up calling your bank or the company that issued you the card and complain, the card company is typically going to give you your money back and then settle behind the scenes with your merchant.
Rahul Dighe:
The behind the scenes settlement comes at a cost to the merchant, so if you are the merchant, you're paying the price. You're paying the price for the bank's customer, who was the card owner, getting a better experience. The best way to avoid chargebacks and disputes is to not have them at all and that's easier said than done but there are things you can do to minimize the risk and minimize fraud. Working with your payment provider to make sure they have the right settings and really understanding your business and your buyers.
Rahul Dighe:
If you're a business that have never sold to France, for example, or to Spain, and you suddenly have a bunch of buyers coming from there, you should really go into this looking... Unless you look out for those, you are going to potentially not only lose the goods that you might stand out, but you also might even get a charge back from your bank because the transaction might end up being fraudulent.
Rahul Dighe:
The other thing to also note is don't underestimate the implication of it. Don't just ignore it. A lot of businesses are just too busy, they rather take the cost in rather than go fight the chargebacks, but it ends up affecting your business. So being ready for it by having a trained staff and having the in-house bookkeeping to be able to trace, weigh your books out, how did you get paid, what precaution that you took, is really going to help you win the battle and most importantly, avoid having chargebacks and disputes against your business in the first place.
Rahul Dighe:
Another important thing to have, and this typically comes up in your discussions with your CTO or your lead technical manager, which is the need to have about backup payment processor. Now, having a backup payment processor is absolutely important when it comes to making sure that you have business continuity, because for many reasons, the processors might not be working, or they may be working in one geography, but not working in another. We have all heard cases of accounts being closed. Accounts get closed for both legitimate and illegitimate reasons. Payment providers do that quite often on merchants and it's in their interest and it's part of their diligence and legal and compliance mandates to stop accepting more money and find out what's wrong. But that basically means that you're at a loss if your primary account and only account that you have with which to process money gets locked.
Rahul Dighe:
So it's absolutely important to have payment processes and multiple of them to ensure that you have business continuity. It may not be something that you invest in up front but it's definitely something that you should invest once your [inaudible 00:18:27] gets better. The thing to remember getting into establishing and getting accepting money is don't build your systems to the idiosyncrasies of the payment provider that you're integrating with first. So make it a requirement to your engineering teams that, "Today I'm starting out with one payment processor, but it's quite possible that we might bring another one on board two months or even two years down the line."
Rahul Dighe:
And the more flexibility that they can build in the way that they create, the better it's going to be for your business. The other important thing to note is a payment provider sales person, knowing that he had that flexibility, gives you enormous negotiating power because technology and the speed of that change is not really hampering your choice. So the choice is based on how good a payment provider is, and not based on the fact that you have a technology team that you just cannot get to move on to a new payment provider because your own internal systems becomes cost-prohibitive and you lose all the advantages of bringing in someone new.
Rahul Dighe:
The other point is, if you're a platform, and by platform I mean someone who connects buyers and sellers, and you are the intermediary that manages that transaction and it markets the products but doesn't have any [inaudible 00:19:54] free, then that's the platform I'm talking about. But there are various ways you could monetize the platform. The easiest way is because you're managing transactions between buyers and sellers, you pretty much are offering sellers a lot of payments services. So you might get X pricing from your payment provider and you might mark up by 10% or 20% to offer it to your sellers. You might even bundle pricing differently, so that sellers who are at a silver plan or a gold plan or a platinum plan get different pricing, and they can self select which plan is best for them.
Rahul Dighe:
So there are many ways to slice and dice and package payments as services and payments as products to your sellers, particularly when you're running a platform. FX is a great example, where FX is traditionally a very high margin business in payments and that's where you can use the leverage that you might have that your payment provider can mark up FX rates or help buy and sell FX rate that you can use creatively to your advantage.
Rahul Dighe:
And if you're really, really big, you can almost find providers who might be willing to white label the entire payment experience, and come onboard to you as an infrastructure and less towards a payment relationship or a payment provider. So there are quite a number of ways to monetize payments. A lot of it depends upon the size and scale where you are, but even if you're starting small, it's good to know that payments might be seen by some as a cost center and where you just sunk money in, but you could use it to your advantage if you can package it in a way and offer it to your sellers.
Rahul Dighe:
And finally, don't leave this decision of choosing the right payment provider to your developers. I love working with developers. I build products with developers in mind and I do everything I can to make their life super easy. But the reality is, choosing the right payment provider is a lot to do with the kind of flexibility and the kind of approval and authorization that you said they can offer you and less so about what's the technology investment.
Rahul Dighe:
An upfront technology investment that's even three or four times higher than the easiest integration might be worthwhile if you're going to get a better authorization rate or might be better if you're going to get IC++ pricing, or it might be better if you have access to a whole bunch of local payment methods that you would never get access to. So it's important. It might seem very tempting because in most companies, the conversation starts, if you're a small company, okay, you'll go ask a developer, "Hey, do you know a payment provider?" And they might call out one that they've worked with previously and you know that they, because they worked on it, they can integrate faster and quicker and they might get started in the week.
Rahul Dighe:
You might do that as a start, but realize that once the money keeps flowing in, it's very difficult to cut ties and then completely return to something new. So use your time, spend the effort, you might be in a position, or your company business might dictate that you follow the path of least resistance in getting it started faster, but the minimal lines of code and simplicity should be a consideration but not the most important consideration when you're choosing a payment provider.
Rahul Dighe:
And finally, optimizing and monetizing payments is a long, long road. At the moment you start accepting your money is the start your journey, it's definitely not the end. So I would caution anyone by just disbanding the team the moment the first card transaction comes in. It's very important that you keep the team around till it gets to a point where you feel like the losses are acceptable, the number of chargebacks of goods are acceptable, and really you reach a point of diminishing return.
Rahul Dighe:
So it's very important that you continue our the advice to have the team continue once the payments has been integrated and the money started flowing in for at least a couple of months, so you have to time to optimize it and work out any kinks in the process. I hope this talk was interesting. I tried to distill as much knowledge as I have got, seeing this firsthand working with different merchants. And finally, stay safe, and if you have any questions, feel free to reach out. I'm happy to answer any questions I might have. Thank you.
