Choosing a suitable payment service provider (PSP) is crucial for the success of an online business. Customer requirements, target group needs, company requirements, and the availability of payment methods are all important factors when choosing the right PSP.
In this blog post, we want to provide an overview of how to find the right Payment Service Provider for your own company and shed light on this process step by step.
The Covid-19 pandemic has further boosted sales in e-commerce. This is not a groundbreaking realization. According to Statista, e-commerce sales in Germany (B2C) has increased by 25.3 billion in 2021 compared to 2019.
It’s important to mention that e-commerce in Germany was already on a growth path before the pandemic. According to the Federal Statistical Office, sales in Germany increased by 11.3% in 2019 compared to the previous year. However, the pandemic-induced acceleration of this trend is remarkable and has permanently changed consumer behavior. This trend is clearly visible in the following infographic:
Evaluation of your wwn business model
One’s own business area should be carefully analyzed. Several factors play a crucial role in this, including:
- The legal sales units of the offered products and services
- Quantity and scope
- Is the sale international or only regional?
- Time-bound factors such as seasonal products or special promotions
- Is the sale a one-time transaction or a subscription?
Especially with digital services, different payment models should be considered, such as subscriptions, memberships, and recurring payments after trial periods.
The sales channel is another essential factor. It may make sense to enable purchases via mobile devices in addition to the website. Utilizing multiple sales channels (multichannel) can be very attractive, as the rising prevalence of click-and-collect purchases and marketplace models indicates. Long-term strategic goals of the company should also be incorporated into the considerations.
Consideration of customer requirements
The choice of the right payment methods is highly important and should be offered to the end customer via the respective sales channel (online or in-store). When choosing, aspects such as user guidance, comfort, and security are crucial.
In general, one can distinguish between traditional and alternative payment methods:
Traditional payment methods include cash, bank transfers, and credit and debit cards. These payment methods have been in use for many years or decades and are therefore widespread.
Alternative payment methods have seen significant growth in the recent past. These include mobile payments such as Apple Pay or Google Pay, cryptocurrencies, and Buy Now, Pay Later (BNPL) services, such as Klarna or Afterpay.
To ensure a business doesn’t risk losing potential customers during the checkout process, it’s especially important to discern the buying behavior of the respective target group.
To provide a visual representation of this behavior, we present a 2022 graphic detailing payment trends in Germany:
It should be noted that the German market is only cautiously open to new payment methods. This is also due to the persistently high preference for cash. However, since the start of the COVID-19 pandemic, a continuous change in payment behavior in Germany has been observed, which is also due to the growing online business. Nevertheless, there is already a higher acceptance of digital payment methods in the Scandinavian and Anglo-Saxon countries in Europe.
As a result, it is important that online retailers in Germany ensure that their payment options keep pace with changing consumer trends in order to support their business development.
Taking internal company guidelines into account
Essential for the selection of the right PSP (payment service provider) are also the internal requirements of the company.
For larger business models, aspects such as the usability of the user account, active training and coaching, a flexible setup of the account structure with the PSP, and flexible role and permission structures are relevant. Risk management is also important. Every shop operator receives a merchant category code (MCC), which provides information on transaction fees and may contain standard risk management settings. PSPs that specialize in high-risk segments offer automated risk management solutions that help to better control payment default risks and costs.
The IT department considers factors such as the integration of a payment service provider (PSP). Interfaces to the used shop system are important here, and there are various integration methods, from the pay-by-link option to individual development. Good PSPs offer clear documentation for integration. System availability of over 99.98% should be the standard. The implementation of legal requirements, such as two-factor authentication, and technical standards like 3D Secure 2.0 should also be inquired about.
Reporting and payment history are particularly relevant for the financial area. It should be clarified which reports are available and in what format and when, and whether they can be integrated into existing financial software. PSPs should be able to process and pay out in different currencies and ideally offer a dashboard that provides information on payments. Automatically generated emails in dispute cases and a central contact person can also be helpful.
The legal department can also make demands. Legal departments often consider whether the PSP can carry out payment transactions on its own or whether additional contracts are required. Topics such as contract duration, proof of certifications, and licenses can also play a role. It is also advisable to ask whether the PSP automatically checks “sanctions lists” and blocks purchases from individuals or countries to whom or where sales are not allowed.
Selection process of suitable payment service providers
After defining the business case and considering all customer and company requirements, the actual selection process can begin. At this stage, close engagement with potential PSPs is advised. It’s wise to request test accounts and references and enter into active contract and price negotiations with two to three providers.
Performing a thorough examination and evaluation is beneficial, as expanding a business model from a regional to a global setup is much easier with a strong partner by your side. Depending on the size of the business model, a standardized RFI/RFP (request for information/request for proposal) process can also save a lot of time.
After choosing one or more suitable PSPs, there will eventually be a sufficient amount of data to evaluate customer and transaction data.
Once there is a decent amount of online transactions available, payment streams should be optimized through targeted adjustments and fine-tuning of settings within the accounts. Smart routing options, automatically displayed payment methods, and the use of machine-learning technologies for adjusting buyers’ risk settings can increase checkout conversion rates.
The consideration of connecting additional PSPs, building your own infrastructure, or acquiring a white-label solution is especially relevant in an international setup or for very large retailers, and can be an important in one’s own digital ecosystem.
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