In the first two parts of his article on online payment methods for German startups, Martin Ott outlined basic requirements and discussed the most common payment methods. In the third and final part, he looks at the costs involved and the importance of data security.
What costs can be expected?
The costs involved when integrating a new payment solution vary from provider to provider. This goes for commission fees per transaction as well as set-up or recurring monthly fees. These can range from several hundred to thousands of euros per month. Depending on sales volumes, transaction fees are typically between 0.99 to 3.5 percent plus a standard 30 cents per transaction. In addition to the fees for the use of the service, new companies should not overlook the cost of integration, risk management, debt collection, reporting and customer service. It is therefore recommended that startups look to providers who offer a full-service solution that covers these other aspects at no extra cost, allowing the startup to focus on their core competences and aim for rapid early growth. Once established, the company can decide which processes should be developed internally.
What safeguards do online shops need?
Many online retailers continue to be affected by increased credit card fraud and face substantial problems with non-payment and returns. Startups should make sure to choose an online payment processing company with a professional risk management service, which in case of fraud provides comprehensive protection. Debit and credit cards should not be processed without automatic credit reference checks, address matching, blacklist scanning and a suitable collection service. But beware: While most providers claim to offer such protection for owners, the direct costs of any fraud are often passed on.
How do you recognise early warning signs and protect against payment fraud?
Many online retailers are inexperienced in dealing with fraudulent payments. For this reason, they are an attractive target for an increasing number of criminals. Store managers should therefore always check the security criteria of cash and pay attention to the warning signs that fraud may be happening.
For example, if a customer who has used the shop suddenly buys a large number of items that can be easily resold, online merchants should be on guard. While some criminals first make a number of smaller legitimate purchases to build trust and prepare the way for the fraudulent big purchase, others go immediately for a large value purchase and are never heard from again. Special vigilance should be exercised with orders taken between 1am and 4am, since many criminals count on there being few manual checks of payments during the early hours of the morning.
You should also review patterns in customer behaviour. For example, be on your guard where the invoice address differs from the delivery address. Online merchants should also not send goods to a PO Box, if there are no compelling and plausible reasons for doing so. For foreign purchases, large purchases, unusual addresses or just a feeling that the transaction does not look kosher, making contact with the customer is a reasonable step. Caution is advised when no one responds to the demand for contact. Online criminals prefer to avoid any contact with the victim, even if it means that they have to walk away from their fraud.
Use of secure payment technologies
When accepting credit and debit cards for payment, online merchants should ensure they use all available payment checks, such as the CVC-code (three digit security code), an address verification and the 3-D Secure technology (verified by Visa or MasterCard SecureCode). It is also advisable for the store owner to sign up to blacklist services from its payment provider, which keeps up to date information on stolen cards so that payments can be refused on these cards during the payment process.
Selecting the right payment service provider
Ultimately, the founder of a web business can save money, time and effort and achieve more sales if they take the time to carefully assess and choose the right payment provider. Startups often make the error of rushing into an agreement or entering into exclusive long-term commitments with a payment provider that is ultimately unsuitable. They usually accept the first available provider, because payment has only a very minor role when they are planning their business. This often results in higher costs, or reliance on an unreliable and poor account management platform. To recap, the most important things to remember when selecting a payment provider are: do a reference check, do not sign any exclusivity deal, accept no setup fees or minimum guarantees and evaluate the total package of benefits on offer.
For startups not only the payment portfolio is crucial (debit, credit cards, Giropay/Sofortüberweisung plus one or two eWallets), but also proper risk management, reporting systems, international payment options and a manageable integration options. Take your time and make sure you pick the right partner. With the right payment provider, you will be able to scale faster with less risk and thus realise more revenue from your venture.
About the author:
Martin Ott is the joint CEO of Moneybookers, where he heads up sales, P2P, marketing, products and services. He was formerly the COO at Jamba, a global leader in mobile entertainment services, and before that founded and was CEO of the Tokyo-based Eken K.K., an online platform for community and consumer reviews. Ott studied international business administration at the WHU Beisheim School of Management in Vallendar, the Finance Academy in Moscow and the Keio Business School in Tokyo.