As detailed on the master plan customer development is an essential part of building a business, it has to be there and constantly revisited. Of the questions we asked and keep asking when meeting and talking to different businesses is “what do you hate about the current payment solution you use?”
Majority of businesses in the UAE and the region accept credit cards as a form of payment; however it is not all good news. The major limitations they face with credit cards can be summarized into:
Cost
The merchant loses money accepting it. There are primarily two types of costs; cost on transactions and flat monthly charge and also there maybe other hidden fees as well.
A lot of businesses have marginal profits and when you factor the credit card fees they end up losing a lot across multiple transactions rendering their profit margins even lower. This is especially painful for online marketplaces
and businesses in low-margin niches like grocery stores.
That cost enforced on businesses is not low as it ranges between 2–4% of the transaction cost. From the talks we had many businesses constantly re-negotiate the fees with their banks for their merchant account. Others advise their buyers to use other mediums like cash or checks all to avoid the fees.
As you can imagine since it is a percentage per transaction that value grows as the item’s price increases. The more expensive the item the higher the transaction fee. Others even enforce a minimum transaction value when accepting cards payments. There are even others who pass that cost to the customer. All of these measures are to bypass that cost.
Another interesting note is that many credit cards offer rewards for using them. Those rewards are usually covered from the fees obtained from merchants that decide to accept them. That is why we see some credit cards are more expensive
than others.
Chargebacks
Another important finding is that many of the merchants don’t get settled quickly because of the possible chargeback or dispute for a given transaction/order. When a chargeback is filed the business suffers the implications.
The chargeback commences when a buyer files a complaint to his/her bank (card issuer) along with the necessary proofs. The value of the transaction would then be frozen/locked and investigations by the issuing bank or entity begins. Accordingly the merchant provides proofs that the transaction stands and the card issuing entity then **decides **who wins the dispute.
To give you an idea what chargebacks can do to businesses:
- When a chargeback takes place the merchant has already lost the transaction fees and will end up refunding the transaction value hence resulting in a loss: loss of both time and money.
- Facing recurring chargebacks puts the business in a bad reputation position with the bank and may even be considered a fraudulent business triggering other legal measures. That is not all, recurring chargebacks may even mean closing down the merchant account which according to the interviews we had with hundreds is not an easy thing to open in the first place.
- Businesses would have to deal with higher reserves and longer settlement periods.
Terrible statements
Let us not detail on how complicated processing statements can get; There is a specific set of knowledge required to fully understand the processing statement. This can be a hurdle to many small businesses; especially with the confusing numbers and calculations and even the usage of various uncommon acronyms.
Acquiring that knowledge does not mean you will be able to read all processing statements. Processing statements vary among different service providers; each may have their own specific format and styling. Hence making analysing those statements troublesome [1].
Another important issue is the lack of transparency, there are different charges and pricing throughout the statement [2].
Summary
With that said; Merchants are eager to look into alternatives that enable their businesses and lift off the profit barrier imposed by cards payments. With Verify Payments that would be possible and that is one potential verify payments has. Merchants could simply plug Verify Payments into their checkout experience and start accepting money directly to their banks accounts.
References
[1] How to break down your confusing credit card statement, https://lifehacker.com/how-to-break-down-your-confusing-credit-card-statement-1520896576
[2] Transparency in the Credit Card Processing World, https://nationalprocessing.com/blog/transparency-credit-card-processing-world/