The merchant payments market in the United States is going through a fast-paced tech-driven change. Today, we can witness mobile, online and social technologies revolutionizing consumers experience and hence, fostering the merchants` demand for innovative products enabling multichannel commerce, big data analytics, enhanced loyalty programs and targeted advertising. Variety of tools provide consumers an opportunity to shift seamlessly between computer, mobile device and in-store experience while shopping. While it enhances the shopping experience for the customer, it also creates an opportunity for merchants to collect and leverage data generated from multiple channels into insights about consumers and the ways to integrate all channels for a better experience.
A recent McKinsey&Company report on Innovations and disruption in U.S. merchant payments highlights the growth trend in the volume of electronic payments. With large merchants consolidating the biggest volume of transactions, small and midsize merchants are processing significantly less along with the slower pace of growth. With a majority and growing volume of transactions being conducted at large merchants, vendors have a valid reason to focus their solutions on the bigger players in the market. Although midsize and small merchants have the same needs in payments processing, their scale of business creates a need for customized cost-efficient solution.
Payment processing companies that focus on acquiring mid-size businesses as their clients to deliver the best solution should focus on a number of elements important for these merchants.
Transaction Rates and Additional Expenses
Pricing estimation is crucial for midsize merchants. Relatively lower financial capacity and volume of transactions of midsize businesses make it inefficient to sign up for services like PayPal with fees of 2.9% + $0.30 per transaction or other leading vendors tailored to serve industry giants. There are different pricing models that can be applied better for this segment and each has its advantages for a certain size of merchant:
- Percentage rates (swiped and keyed-in cards)
- Pre-transaction fees
- Monthly fees
- Monthly minimums
Ability to estimate the balance between the costs and savings of each charging option is a competitive advantage for the vendor. Midsize merchants vary in the most common types of transactions made (single high value transactions vs. numerous small value transactions). Flexibility and ability to adjust each element of the payment processing solution vs. a pre-built “single size” option may tip the scales towards certain vendors.
- Time to set up an account
Midsize merchants are in a peculiar position where loss of time can significantly affect their business. Larger companies have better financial stability to allow themselves a slower pace of implementing changes. On the other hand, the time to set an account with a vendor for midsize and small businesses can be disruptive.
- Free installation
With technological advancements in the payment processing industry, numerous startups are fighting for merchants to sign up. Competition and the desire to take clients on board forces them to offer the solution implementation for free in order to get their foot in the business. On the other hand, the same factor--the number of advanced and simple payment technologies available in the market today--allows merchants to go for a free solution instead of a paid alternative.
- No contract required
Vendors serving large merchants usually sign up long-term contracts that lock merchants in and ensures long-term partnerships. Midsize businesses may require more flexibility as their size enables them to adopt rapidly evolving technology faster than large merchants are able to do it.
- No termination fee
Costly penalties for contract termination are something for vendors to stay away from. Merchants’ freedom to terminate the contract and close the account will add to the competitive advantages of a vendor.
- Security Compliance and Fraud Protection
Credit and debit cards are a source of sensitive information, and are always subject to abuse and fraud. It is therefore most important for a merchant of any size that vendor is required to follow security standards established in the Payment Card Industry (PCI compliance).
Other features to consider are:
- Shopping Cart
- Mobile Credit Card Processing
- Time to deposit money into the bank account (same day to 2-3 days)
Accepted Payment Types
There is a variety of ways for a customer to pay for the product. General groups of payment types are:
- Card Payments (Visa, MasterCard, Amex, Maestro, Discover, UnionPay, etc.)
- Alternative Payments (payment apps, bitcoin, mazooma, BillMeLater, etc.)
- Digital Wallet Payments (PayPal, MasterPass, V.me, QIWI, etc.)
Customers have never been as knowledgable and tech-savvy about the payments as they are now. The availability of multiple payment options increases the chance that a customer will finish shopping with a purchase. However, there are certain more common payment types that are used by customers.
Nonetheless, insights driven from data collected by the merchant can indicate which payment types are worth maintaining in its particular case. Keeping all options open doesn't necessarily add value for the consumer. Data-driven optimization can significantly improve the customer experience by reducing the noise and unnecessary options.
For the merchants to make the best choice of the vendors most suitable for their businesses, it is necessary to make a comprehensive comparison of the players in the market. Vendors, addressing the above mentioned needs of the midsize merchants sector, need to take a similar approach, of course with appropriate differentiation. The final choice will depend on the compromise that merchants can afford. Examples of payments companies tailoring their services for small and midsize merchants include: