An entrepreneur who has created a start-up will have myriad things to tick off their checklist before they are ready to launch. These will include a clearly defined business strategy, a marketing plan, a functioning web site and sufficient funds to tide them over those first few difficult months.
However, near the top of the list should be identifying a payment platform that will allow your business to thrive. It should support a broad range of global payment options – including mobile – and be reliable, secure, and affordable.
However, with a wide range of options and new platforms continuously entering the market, it can be difficult to decide which is the best fit for your start-up.
Traditionally, online payment processing involved the combination of a merchant account and a payment gateway. A merchant account is a type of bank account that allows a business to accept payment by either debit or credit card – Visa, MasterCard, American Express, for example.
By contrast, a Payment Gateway is a merchant service that authorises card (debit and credit) and direct payment processing. It is provided by an e-commerce application service provider to for e-businesses, online retailers, and traditional bricks and mortar retailers. Such payment gateways may be facilitated by a bank or by specialised financial service providers.
A Payment Gateway allows information to be transmitted from a payment portal, for example an e-commerce website or a smartphone app, to the financial institution. With this option you have to apply for both types of services, which can take some time and may delay the launch of your business.
The next generation of payment solutions like PayPal sought to combine the merchant account and payment gateway into one. The advantage of such methods is that they offer a quicker set-up, accept all major credit cards, and there are no monthly fees or set-up costs for a basic account.
The disadvantage is that customers are often redirected away from a company’s website to pay for an order, resulting in a less favourable check-out experience, and an enhanced risk of dropped sales. And there may be country specific limitations on the use of these payment options – PayPal and India are a case in point.
New mobile payment options are coming onto the market all the time, with the objective of disrupting the status quo. Companies such a Stripe, for example, have the objective of removing all the difficulties associated with accepting online payments, and will integrate in a seamless fashion with an e-commerce website’s check-out page.
The advantage for the retailer is that fees are reduced, because there is no need for a merchant account or payment gateway. However, one drawback is that the customer support offered by many of these new entrants to the market is less than offered by the traditional banks and system providers.
The Rise of Mobile
Meanwhile, the rise of digital and mobile payments continues apace. By 2021 e-commerce is expected to become the largest retail channel in the world, overtaking sales through traditional brick and mortar outlets such as supermarkets, department stores, and high street retailers. Mobile payment apps have overtaken cash as the preferred payment method for many, although the pace of adoption and spread is not even globally.
In Asia Pacific e-commerce already leads the way, whereas it will take Western Europe five years to catch up. Nevertheless, offering a convenient mobile payment solution is now just not a “nice to have” for any online business, but a commercial necessity.
Credit Card Terminals
Many more conservative customers still prefer to pay by credit card and, for the retailer, this does offer advantages. Research has indicated that consumers will spend more because the credit card enables them to make on-the-spot purchase that they may not be ready to make with cash.
However, one drawback with some cad machines is the high monthly fees associated with them, even where monthly turnover is minimal. However, there are cheaper options available.
SumUp, for example, offer affordable card terminals, like its Air card machine that facilitate payment processing without incremental costs. Utilising a smartphone app, merchants are now able to process payments without additional costs, employing SumUp’s proprietary end-to-end technology for payments that adhere to the EMV (Europay, MasterCard, Visa) payment industry standard. Their card reader supports contactless NFC (Near Field Communication) via RFID (radio frequency interaction) and also communicates directly with smartphones and tablets which have downloaded the SumUp app.
Recent Market Entrants
New competitors and technologies are coming on to the market all the time.
Apple Pay, for example, was first introduced in 2015, as a digital payment and mobile wallet service allowing users to make payment in person, online, and through an iOS app. Initially launched in the US, the service has since expanded to countries, such as the Brazil, Canada, Japan and China.
Now, thanks to a partnership with Revolut, a UK financial technology company offering banking services such as pre-paid debit card, peer-to-peer payments, and cryptocurrency exchange, Apple Pay is being rolled out as a payment option to 16 countries, including France, Germany, Poland, Italy, and Spain.
Another such alternative is Fintech start-up Paysend, which is a Principal member of MasterCard, Visa, and China Union, and which has recently added India, Nepal, the Philippines, Bangladesh, Sri Lanka and South Africa to its global network.
Having a reliable, accurate and secure payment solution is a must have for any start-up, ideally one that is flexible enough to support digital commerce and mobile payments. Whilst traditional card readers can be expensive, there are a number of cheaper alternatives available on the market. At the same time, technological developments and financial service start-ups are challenging the traditional payment industry structure requiring merchant accounts and payment gateways, eroding the distinction between the two and offering signing cost advantages over traditional methods for entrepreneurs.