Why All Credit Card Payments Aren’t the Same
In the late 1990’s, I remember traveling to Europe and being astonished by the lightning speed, friendly exchange rate and drop-dead simplicity with which I could withdraw local funds via an ATM. The humble credit card had morphed into a debit card with powers far beyond what I thought possible a few years earlier while standing in line to cash in some American Express Travelers Cheques. As much as they do work everywhere, in the world of online billing, acquiring credit cards has become a complex challenge for any sized businesses.
The Way It Used to Be
When I tried starting a business in the late 90’s, one of the simpler ways to enable online billing was to sign up with authorize.net, acquire a merchant account through Wells Fargo, and spend a bunch of time on the phone to get everything connected. It was a multi-week process because I needed an incorporated entity, a bank account and programming knowledge.
In this decade, accepting and integrating credit card billing has become simpler. I sign up and begin accepting payments in a matter of hours with companies like Stripe or Braintree. I still need my own bank account not to start the billing process but rather to spend the money I’ve earned.
So we’ve reach the Promised Land, more or less, right?
Because retail companies generally focus locally first, domestic credit card acquiring is far ahead of businesses’ understanding of global credit card acquiring and the nuances that achieve the highest acceptance rates. Companies that grew up in the software digital distribution arena, like Digital River, cleverbridge and Avangate among others, have spent years optimizing global billing and there’s much to learn.
Global Billing Optimization
What’s so challenging about global payment processing and why does it matter for SaaS companies?
- Card geography restrictions — To protect themselves from fraud, many card issuers (think Chase, Citibank or Navy Federal Credit Union) have placed default blocks for non-domestic transactions on the cards they issue. This is particularly true with credit unions, who don’t have the same resources as the big banks, and therefore want to limit their potential losses. Why does this matter? When customers buy something online, they may not know that the transaction is taking place outside of their country and the payment will likely get declined. Solution: sign acquiring contracts in different regions and route orders appropriately.
- Foreign transaction charges —Even if the payment is accepted, customers are often surprised by foreign transaction fees on their statement and invariably get upset. Solution: sign acquiring contracts in different regions and route customers appropriately.
- Foreign currency exchange fees — Another rock in the shoe of customer experience is customers paying a currency exchange fee to convert the payment currency into the currency that the card issuer settles in. Seeing a price in euros, but settling in U.S. Dollars causes the card issuer to surprise the card holder with a generous fee for doing so. Solution: Sign additional acquiring contracts for different payment currencies.
- PCI compliance — Once you start accepting credit cards, it’s time to solve for PCI-DSS, the payment card industry’s regulations. PCI-DSS compliance is a good first step, but no guarantee of security. There are many additional steps that increase your chances of not having an “Oh, shit” moment. Solution: Hire an experienced security expert to manage breach risk.
- Governmental Regulations — What? You don’t want an office in Brazil? Governmental regulations affecting your business are real. For example, due to a Brazilian law, if you want to accept payments in Brazilian real from Brazilian customers, you need a Brazilian real acquiring contract and that requires a local entity. Recently, PayPal had to pull out of Turkey due to a data sovereignty law. Government regulations affecting your business are real. Solution: Hire a global lobbyist to fight for open borders.
The difference in acceptance rates between a traditionally local, retail focused payment acquirer and a globally optimized one is usually between 10% and 20%. The average SaaS business’ non-domestic revenue is between 40% and 60%, which means that all of these small optimizations result in real increased revenue.
A Brave New World
If your business is primarily a domestic one, such as insurance, health care or locally shipped retail, be calm because these issue aren’t affecting you. If you’re just starting your business or are locally successful, but not seeing international interest, the same applies to you.
If you are lucky enough to have non-domestic interest in your service, congratulations because that’s fantastic! When you are ready to “go global” it won’t be as easy as APIs and piña coladas. So sit down and ask yourself what you really want to be: a successful business or a global billing company. If your business isn’t global billing, you need to be a Fortune 5000 company to think about doing this yourself. Otherwise, look at companies like cleverbridge that have over a decade of helping businesses go global. It’s not rocket surgery it’s time, experience and patience to go global.