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The right payment service provider for your online business

Brief introduction to payment service providers

The term Payment Service Provider (English) means payment service provider and refers to all companies that take care of the solution of payment processes. For example, this includes online payment solutions such as Girobank, PayPal, Sofort├╝berweisung and credit card providers such as Visa or Mastercard, to name just a few.

An online retailer who decides to use a payment service provider only negotiates with one contractual partner instead of with many individual providers. For the most part, this works through software-as-a-service licensing, which enables multiple payment methods to be activated or deactivated individually. Upon request, payment service providers can also offer additional services, from risk management to debt collection. A payment service provider saves a lot of work for an online retailer. There is no direct customer relationship between the merchant and the payment solution as soon as a payment service provider is interposed.

Thus, the customer service options with regard to special offers or conflict resolution such as a payment default are limited. Each retailer bears responsibility for his own actions. He must make sure that the selected payment service provider explicitly observes all specified guidelines, for example with regard to data protection. If the merchant is based in a country with much stricter guidelines than the payment service provider, violations can lead to far-reaching consequences. Avoiding security gaps through constant software updates is an important, decisive factor. Since the retailer only rents the technology in most cases, the question remains as to whether the payment service provider takes responsibility should a security gap arise and the retailer does nothing to protect its customers. The selection of providers currently extends to over 900 payment service providers worldwide.

Six selection criteria for the right payment service provider

With the online payment process, there are many legal regulations to be observed and requirements to be met. Many online retailers use a payment service provider to process payments at this point in order to minimize their own effort. There is a lot to consider when choosing a suitable provider. A wide range of services is offered by recognized payment institutions through the Federal Financial Supervisory Authority. This recognition fulfills strict requirements regarding the handling of customer money, customer data and the business processes involved. Securing the transactions processed, as with credit institutions and banks, has top priority and guarantees protection even in the event of insolvency, in contrast to unrecognized payment service providers.

Payment institutions can offer more comprehensive financial remittance services. This includes, for example, the management of payment and trust accounts, the processing of money transfer transactions and other complex financial services that are prohibited to a payment service provider. A regular review of the payment institutions by the Federal Financial Supervisory Authority takes place. Regardless of whether you are a payment institution or payment service provider, there are a number of things to consider when choosing the most suitable provider.

1. The range of various payment options

Most customers always prefer a specific payment method. The payment option is often a decisive point of criticism, whether the customer perceives the ordering process as comfortable and whether it actually comes to a purchase in the end. For this reason, all common payment methods such as direct debit, giropay, credit card payment, debit card, instant transfer, PayPal and more modern options such as mobile payment should be made available to the customer in the online shop. When choosing a payment service provider, it is important to ensure that they offer a large selection of different payment methods and that they provide advice on the selection.

2. Mobile payment

Electronic commerce (e-commerce) has spread rapidly over the past few years from stationary PCs to tablets and smartphones. Every online retailer is well advised to enable their customers to check out quickly and easily while on the move. The payment service provider should be able to automatically adapt the check-out page to the selected output medium through a responsive design. Online retailers thus achieve a high recognition value and can have their check-out page optimized for use on mobile devices at the same time. In addition, a payment service provider should offer a contactless payment method that can be initiated via smartphones or other devices, such as QR code payment or payment via the mobile network operator via SMS.

3. Subscription and regular customer function

Subscriptions are popular in the food and media sectors. The customer can have his consumables delivered to his home automatically and conveniently at regular intervals. Starting with the means of payment through to controlling the subscription process, the online retailer is faced with a complex challenge in order to find an efficient management solution. The payment service provider should therefore provide support for recurring payment transactions and have solutions for recurring payments (repetitive payments) ready. In addition, an update for querying the payment status in real time should be available to the customer at any time. The subscription function should also not only be possible for credit cards. Popular payment methods such as PayPal or direct debit should be "subscription-capable". In addition, the payment service provider should have a regular customer function that ensures that the customer only needs to enter the payment information once. This information is automatically available to the customer for subsequent purchases and guarantees fast, convenient processing of the order process.

4. SEPA settlement procedure

The selected payment service provider should generally provide the processing of SEPA payments. It is important that all existing formats such as CORE, COR1 and national formats are supported and that a conversion service is offered for the customer's account data, so that a free choice can be made between the two processes during the transition period. Because a large number of customers have not internalized their IBAN to this day. It is therefore advantageous if he can enter his familiar account information, which is then automatically converted by the service. An explicit comparison of the fee structures between the individual payment service providers and the conditions of banks is worthwhile. If necessary, there is potential for savings in the processing of payment files, of course only if the selected payment service provider offers the service and is approved as an institute for payment.

5. From multi-to omni-channel payment (Latin omnis "everything")

The number of consumers who would like to use different sales and information channels simultaneously is increasing rapidly today. Online retailers are therefore encouraged to switch from multi-channel to omni-channel payment. Some payment service providers and payment institutions already link payment methods such as prepayment, credit or debit card, direct debit, wallet transfer, bank transfer and payment app. Just as with subscription e-commerce, the new payment options should be adequately mapped and processed easily. For example, by monitoring, recording and making payments in the online shop using the same payment software.

6. Customer security

Your money is in good hands with a bank-independent payment service provider certified by BaFin (Federal Financial Supervisory Authority). Only one payment institute can set up trust accounts for payment transactions with various banks across Europe and guarantee the processing of international transactions. The advantage is that if the payment service provider defaults on an escrow account, the money is absolutely safe at home and abroad. Only approved providers can offer extensive banking-typical services such as account management with additional account statements, the management of payment accounts and payment processing of marketplaces in accordance with the ZAG (Payment Services Supervision Act). The payment service provider must be certified in accordance with the worldwide data security standard Payment Card Industry Data Security Standard (PCI DSS) regardless of his approval. This guarantees secure handling of sensitive customer data and the payment transactions meet the security requirements of Mastercard and Visa. A separate PCI certification is not required.

Risk protection in the event of payment defaults

The most popular payment method among Germans is payment by direct debit and invoice. The online retailer bears the risk of payment default if the invoice is not paid after the goods have been received or the direct debit is reversed by the customer. According to a study by ibi research, payment defaults for direct debits are almost 3 percent and on account even more than 4.5 percent. The resulting costs for collection and dunning procedures should not be neglected in the online retailer's price calculation. The easiest way is to have both payment methods secured by the payment service provider. The payment provider takes on the legal part. He acts as a contractual partner towards the customer and takes care of all financial transactions. The online retailer is guaranteed payment and can send the goods immediately. Depending on the payment service provider, the risk protection can be booked or already included in the offer. Of course, additional fees are incurred due to the provider's assumption of risk. When selecting a payment service provider, it is also important to ensure that a credit check is carried out during the payment process. If the credit rating is poor, a customer can be rejected. There is a risk of high sales losses, as the rejection rate, depending on the selected provider and the desired target group, is between 5 percent and 60 percent.

Payment service provider costs

The most diverse factors lead to the cost composition of a provider:

  • one-time setup costs via online payment method
  • monthly provision fees via online payment system
  • variable costs for each product purchase via one of the selected payment systems

There are payment service providers who do not charge any set-up costs or monthly provision fees. However, the percentage fee is charged higher for a product purchase. Based on the estimated online sales, a retailer can relatively easily determine which of the two variants is more advantageous for him.

Disadvantages of a payment service provider

The work of an online retailer is made considerably easier by a payment service provider. However, there can be disadvantages with the integration of a provider.

  • the incurrence of higher costs than with direct processing via online payment services
  • Possible conflicts with German law if a payment service provider based abroad should not integrate the payment process in a legally compliant manner (for example, the data protection issue)
  • the difficulty of communicating with customer service in the event of problems with the individual payment methods if the merchant himself does not have a contractual relationship with the provider of the payment process

In the end, however, the benefits of a payment service provider outweigh the benefits. Only if there is a really valid reason against its use should the renouncement of such comprehensive help in online payment transactions be reconsidered.