The Many Flavors Of Online Payments

Online payments is a category so broad, that most fail to see the nuances within them. But that’s a trick of the eye, as Simon Black, CEO of PPRO Financial, recently discussed with MPD CEO Karen Webster. The very fact that online payments exist in so many different countries and cultures means that it must have to take on any number of distinctive characteristics depending on who’s involved in a particular transaction…and that can lead to tricky problems that merchants need to solve.

KW: I just love something that you were heard to say about online payments not that long ago…

You made the analogy that online payments is like drinking coffee: There’s an almost universal appeal for the beverage, but everybody likes his or her coffee a little bit different. Why is that so analogous to online payments today?

SB: There are increasing variations of coffee: It’s not just black or with cream and sugar; it’s cappuccino, latte, and so many other options. The process of online payments — particularly outside of the U.K. and the U.S. — similarly includes a volume of significant distinctions, some of which can be quite surprising.

For example, in the U.K., MasterCard and Visa account for 70 percent of eCommerce payments, while in Germany, that number is less than 20 percent. So it’s a massive difference.

There are alternatives to MasterCard, Visa and PayPal. One of the most common in Western European markets —such as Germany or the Netherlands —is to pay directly from your bank account.

Different cultural factors have contributed to these variances in preferred payment methods. In Germany, for example, there is a cultural resistance to credit — to borrowing money. Only a minority of people in that country have credit cards; for most, if they’re going to buy something, their preference is to pay for it straight from their bank account as a way of keeping precise track of their actual personal funds.

In terms of supporting eCommerce, online mechanisms have emerged — such as giropay in Germany, and iDEAL in the Netherlands — that bring the convenience, speed and security of something like PayPal to an online bank transfer.

KW: How does PPRO enable the payment preferences of consumers across the world when they’re shopping online?

SB: The process that a merchant goes through when they want to accept payments online is the same whether it’s in the U.S., U.K., France, South Africa, et cetera. To begin accepting payments, a merchant basically goes and looks for a payment service provider — someone that’s going to sit between the merchant website and all the different payment mechanisms it may need to accept.

Payment service providers tend to have a local market focus. In the U.S., they’re going to set up a merchant to accept Visa, MasterCard, and PayPal. If it’s a Dutch service provider, they’re going to offer iDeal. When it’s supporting a merchant that wants to sell cross-border, that payment service provider is going to be less focused on those many different payment methods the merchant may need. To integrate each one of those is a huge workload; the service providers have a finite product development capability and lots of things they need to do.

What PPRO does is offer — through a single platform — a payment service provider access to all the different payment methods they may need.

On top of that, which is quite fundamental, we don’t just process the transaction; we also collect the money and repatriate it into the home market for the payment service provider’s merchant.

KW: So you make it easy for the merchants to accommodate the local preferences of consumers in those markets.

SB: Exactly. Loosely — going back to our coffee analogy — a few years ago, a U.S. payment service provider wouldn’t have filled the coffee inside out. Maybe they can do a standard cappuccino and a latte, but as they get more adventurous, supporting more merchants, they need to be able to support Turkish coffee or Moroccan tea.

We are that partner that can provide all of those exotic alternatives.

And the integration through one platform is really important, because no merchant wants to go through loads of IT work just to be able to support expansion into a new market. The cost of expanding has become so low that you can more or less translate your website, but we want to make it as cheap and as acceptable as possible for a merchant to further localize the consumer experience by having those local payment options presented at checkout.

KW: Consumers want to see money moving between accounts — whether it’s a P2P account, or money that is being sent to another business or merchant — do so more rapidly. You’ve said on your blog that that it is a reality that all of Europe (including the U.K., of course) will experience soon.

How soon? And isn’t faster payments actually already a reality in many parts of Europe?

SB: You’re absolutely right; faster payments does exist as a platform, as a protocol…but it hasn’t made its way into all the different aspects of consumer payments yet.

We do see a trend towards more immediacy around payment collection and settlement. I think mobile payments — tolls like Apple Pay — will drive that higher expectation. Of course, in some scenarios, either the merchant or the consumer doesn’t want instant settlement…but what we see is a growing trend, particularly in markets like Germany and the Netherlands, growing closer and closer to real-time settlement.

Today, it varies by country. It can be close to real-time; it can be a matter of 15 minutes. But as there’s more integration across different banking systems, and banking infrastructure is updated, then we will get to real-time.

KW: Do you really think there’s a business case for real-time? I know that there’s so much buzz around it, but faster payments doesn’t necessarily have to mean real-time, right?

SB:  I do think there’s a demand for real-time, but I also think it’s not required in all cases.

For me, the evidence of a demand is cash. Cash was pretty successful for a long time; when you hand over the cash, you’re done with the transaction. There may be a question of refunds or different guarantees around it, but fundamentally, the process is an instantaneous one.

I think there are various applications that do require real-time settlement. If we are going to move to a cashless society in the future — which I believe we will — it’s really important for real-time to be offered through some mainstream payment mechanisms.

Of course, there are a lot of other applications where it can actually be beneficial — to the buyer, or the seller, or both — to not transact in real-time.

KW: From the data I’ve seen, use cases where real-time is essential make up quite a small percentage. I do agree that there are some situations where it’s useful; your analogy about cash speaks to that.

Let’s bring the conversation back to you: Where do you operate today, and what are your plans for the future?

SB: PPRO operates internationally. The focus of our business has, until around a year ago, been Europe because it’s our home region and it’s where quite a fragmentation of different payments exists.

We’ve seen more opportunity from Asian partners, leveraging our network for Europe but also beyond it. Some of our partners are now using our platform for South American payment methods — another region where there’s high fragmentation — as well as in Africa, possibly the most fragmented because it’s an economic region growing quickly from a small base.

In terms of expanding into North America…it’s a region where payment methods are fairly simple by comparison, but there are many different U.S. merchants that operate in different markets or want to expand into different markets, so we do see a growing interest in our platform from payment gateways, acquirers, and payment service providers based in the U.S.

KW: There are so many players that are entering the space because of the opportunity and the complexity that you describe.

How do you guys differentiate what you do from other companies looking to seize that opportunity? Do you not necessarily need to, because the pie is so big, or is there something specific that you do to try and make PPRO stand out to anyone who might be looking to utilize your capabilities?

SB: It’s not that the pie is so big; it’s that the role we fulfill is really in a niche market. There aren’t a lot of companies offering the kind of platform we have to payment service providers and acquirers — there are very few, in fact.

The service we provide is a unique one, which leads to the second part of my answer, relating to what makes PPRO stand out.

Because of our specialized focus, we have developed a high level of expertise. Simply adding a payment method can actually be a very time-consuming process, necessitating the navigation of local bureaucratic regulations and the balancing of related technical aspects. By doing that legwork for our partners, we rapidly accelerate their time to market.