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Masha Cilliers, Consultant Payment Options Ltd

Atp masha cilliers on apm cost reduction

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Masha Cilliers, Consultant

Payment Options Ltd

Different travel sectors and payment issues facing them ◦ Hotels – prepaid

◦ Airlines – chargebacks

◦ Others – OTAs, car rental, cruises

Alternative Payments Background (Refresher) ◦ AP summary

◦ Types of alternative payments

Pros and cons of selected APMs

Cost Comparison

PSPs and reservation systems

Summary and recommendations

Hotels

◦ Prepaid vs. post paid, some payment methods are better for pre paid

◦ Payer mentality when it comes to prepaying via bank account

◦ Card chargebacks, friendly fraud, lost/stolen card numbers

◦ High ATV so card processing fees are high comparing to flat fees of APs

Airlines and travel agents

◦ Higher rate of chargeback for cards whilst bank payment methods have less opportunity to charge back

◦ More fraud in the travel industry as there are different fraud patterns in different regions and relatively long time between payment and fulfilment

◦ High ATV so card processing fees are high

Others: Car hire, Cruises

◦ Often prepaid in full or elements, high ATV

◦ OTA – inventory holding, need immediate clearing

Figures ◦ The online travel is expected to grow to $313 billion by the end of 2012,

representing 30% of the total travel market. In 2013, one third of all payments made for travel & tourism purchases will be made online (source Payvision report)

European markets are very varied in terms of which alternative

payments are used and to which degree

From very card focused markets such as France where over 80% of

ecommerce transactions are paid for in cash or Italy with 70%

respectively, to Germany with 22% on cards and Netherlands with

less than 10% respectively

Alternative payments also vary from very sophisticated automated

banking services (Ideal, Nordea) to more physical methods such as

cash on delivery or off line bank/post office transfer

Therefore the Alternative Payments strategy needs to take into

account which markets you are going to sell in to ensure that you

get the right mix of payments both for your needs and to meet the

customer expectations

Bank payments

◦ Online bank transfers (Ideal, Giro, Nordea)

◦ Off line bank transfers

◦ Direct Debits

◦ Money remittances/Cash (Post, MG, WU)

Wallets (Paypal, Skrill, CashU, Yandex, V.me)

Mobile (Wallets, Pperator Bills, Tansfers)

Prepaid cards (Safepay, Ucash, Wallie)

Local cards and other local schemes (Carte Bleue,

Dankort)

Good for most type of ecommerce, but limited to countries where service exists, albeit different in every

market

Real time payment using an

online banking system and a

clearing arrangement in

countries where this has been

set up

The consumer is redirected to

their online banking long in

page, the amount and

payment details are pre-

populated, the confirmation to

the merchant is instant

Pros ◦ Guaranteed payment

◦ Immediate authorisation response, quick clearing

◦ In some countries consumer prefers to pay with debit vs. credit

◦ High usability in European markets (Germany, Netherlands, Austria, Scandinavia)

◦ More competitively priced especially for high ATV

Cons ◦ Worldwide less usage than cards

◦ Need different integration for each and an understanding of each scheme, whilst cards are uniform worldwide

◦ Not entirely a pull payment mechanism, the customer still has to press ‘ok’ on banking page

iDEAL is a standard payment method for making secure online

payments directly between bank accounts. When you offer iDEAL

as a payment method in your online store, a direct link is

established with the systems of your bank

http://www.ideal.nl/demo/eng-GB/web/01.html

more than 70,000 online stores

10 million consumers already use online banking in NL

Mobile payments available

Cost – 10-40 € cents depending on volumes and PSP

Good for recurring, Low fraud and ‘high necessity’ products (e.g. mobile subscription, database services)

Direct debits are widely used

in many countries

UK, Germany, Austria,

Belgium, Poland, Spain,

France, NL, USA (ACH)

The customer gives authority

to the merchant to debit his

account often on a recurring

basis, but can ‘chargeback’ the

transaction for a very long

period of time

Pros ◦ Pull payment method like credit/debit card ◦ Guaranteed payment ◦ In some countries consumer prefers to pay with debit

vs. credit ◦ High usability in European markets ◦ Very competitively priced especially for high ATV –

flat fee generally

Cons ◦ Long chargeback period, growing fraud ◦ Cleared funds take a week+ but OTA/Airline needs to

commit to inventory immediately ◦ Worldwide less usage than cards and in some

markets mainly for utilities ◦ Need different integration for each and an

understanding of each scheme, whilst cards are uniform worldwide

Good for markets with limited online payment

options to increase your geographical reach

These are money transfers

where the consumer doesn't

have a bank account and goes

into an office or an affiliated

shop/location to put cash in

Western Union, Moneygram,

Boleto, Konbini, Santander

and others

Pros ◦ Addresses unbanked population or countries

where there are not many online payment options

◦ Guaranteed payment ◦ Widely used in underbanked markets and is

customary for unbanked consumers

Cons ◦ Can be quite expensive ◦ A Push payment mechanism, so needs an action

(often physical i.e. going to post office, from consumer)

◦ Cleared funds take a number of days but need to commit to inventory immediately

◦ Need different integration for each and an understanding of each scheme, whilst cards are uniform worldwide

Good for markets with high consumer penetration, if international can be one shop stop solution, if local – a

good competitive tool

There are many different

wallets globally with some

being international as Paypal

and many specific to their

markets as Yandex or

Webmoney for Russia.

Visa and Mastercard are

launching their wallets V.me

and PayPass respectively and

there are more to come from

different quarters

Pros ◦ High usage in some markets

◦ Customer feel more secure by not sharing their card details online – often an issue for the travel sector

◦ Quick checkout process, less opportunity to drop out

◦ Immediate authorisation response, quick clearing

Cons ◦ Can be expensive, often costs more than

cards

◦ Often is still funded by a card, so does not necessarily open up to a new target segment (e.g. Underbanked)

Online Bank Transfers are generally a combination of a flat and a percentage fee, average* being 2% and €0.30, although going with a local provider can cut costs considerably

Direct Debits are mainly flat fees around €0.35-0.45

Money Remittances are generally a combination of a flat and a percentage fee, average being 2% and €1.00

Wallets tend to be a little more expensive on average around 3%, but some are negotiated directly with provider (e.g. PayPal) although can still be processed via PSP

Cards for comparison are around 2-3% including PSP and Acquiring charges, internal costs for processing and managing fraud and chargebacks

Comparing Bank Transfers to Cards for an average transaction value of €200 the saving is can be at least €0.70 and for the ATV of €600 around €2.70. For a million transactions that nearly €3M!

*fees are quite different for different systems, we attempted to find an average number

Chargebacks ◦ There are different chargeback rates with different payment methods as

mentioned earlier

◦ Leads to significant savings in chargebacks especially in high fraud verticals (travel is often considered as such)

◦ E.g. Online Bank Transfer has virtually zero chargeback so if your chargebacks are 2-3%, it can save hundreds of thousands

Fraud ◦ Although fraud in APMs is growing (see Experian report on UK DD) it is

still a lot less common than credit/debit card fraud

◦ This can also lead to significant savings by spreading the risk

PCI Compliance ◦ PCI DSS applies only to international credit/debit cards, and although

there are some APM specific security requirements for each scheme they tend to be less of a cost burden than PCI

Each merchant is different!

◦ Of course to find out the exact savings one needs to

look into each merchants business in detail. The

following should be considered:

Markets where plan to sell and appropriate APMs

Products and price points

PSP or combination of PSPs and/or Banks

Direct connectivity vs. one stop shop strategy

Utilising reservation systems for payments

Some have long list of APMs already in place

Need to check if same interface or if more integration work is required (including integration fees if any)

Some are more flexible than others to add new features upon merchant request

There are generally cost implications to build a business case for each new feature

There are also often regular monthly maintenance charges making it more cost efficient to use small number of payment providers/PSPs

Experience says that not many PSPs can do all markets equally so for truly international cover a complimentary mixture of Global and Local PSPs may need to be considered

Reservation Systems have

PSPs connected to them for

various payment services

Some have direct APM

integrations themselves

When considering alternatives

it’s good to see the full picture –

it maybe provided by a mixture

of the two – PSP and the

Reservation System

Within Travel industry different sectors have their own issues to address Alternative Payment Methods are plentiful and often talked about, but

merchants need to consider where they operate, what they sell, who their providers are to make sure they get the right mix in order to truly reduce costs

Each APM has it’s pros and cons and the fees vary widely, some were given here, but needs to be considered for each merchant and their market individually

Generally the APM fees have a flat fee component what makes them more cost efficient for higher ATV (as in travel sector)

Savings can also be made on Chargebacks by using one payment method vs. another as well as on Fraud losses and PCI DSS process management

Today many PSPs offer APMs but merchant needs to understand what those are, what type of interface is required, how quickly new ones can be added on demand and finally if some can be achieved via reservation systems

Masha.cilliers@paymentoptionslimited.

com

[email protected]

Skype – Masha Cilliers UK