8 questions to ask when choosing your payment provider
Last editedDec 20223 min read
There’s no one perfect payment method. Cards are convenient until they get lost or expire. Bank transfers can be quick but rely on the payer being prompt. ACH Debit gives you control over payment timings, but it can take longer for your money to arrive.
The optimal payment method depends on what you’re selling, how it’s being bought, and where your customers are, amongst other things.
The key is to take a bespoke approach. Here are 8 questions you should ask your current, or prospective, payment provider. These criteria will help you judge if the method they offer, and the way they offer it, are right for your business. At the very least, a credible payment provider will know the answers to each of these questions. Whether they’re willing to tell you is a good measure of their integrity.
1. “In each of the countries we have customers, or those we’re targeting for international expansion, how many could use your payment method today?”
Not every payment method is available in every country and customer preferences will change depending on the country. And even if a payment method is available, it does not follow that a provider offering the method in one country will also offer it elsewhere, or enjoy a similar penetration as other markets they serve. This may be a strategic decision on the part of the payment provider, or more likely a result of when they entered a market and how established other providers currently are there.
2. “And how many would use your payment method, given the choice?”
Lots of factors determine how a person or business prefers to pay. Convenience, simplicity and trust are some obvious ones. How likely they’ll respond to an incentive to switch to a particular method is worth considering. Also, if the payment provider is willing and able to help you promote their method to your customers.
Payment preferences in the UK: 2019 - 2020 snapshot
3. “How likely are my customers to sign up to use your payment method?”
Two factors play a role at this critical conversion stage. Firstly, will your customers be familiar and comfortable with the sign-up mechanism(s) you use? For example, some people are cautious about providing their banking details over the phone.
Secondly, how easy is the sign-up process for your customers to complete? If it is complicated and takes too long, they won’t thank you. In a world where businesses live and die by their customers’ experience, you’ll want to understand every step your customers take - from sign-up to when they start making individual payments.
4. “How long does it take to receive the money in my bank account(s)?”
Waiting to receive the money you’re owed has a profound consequence on cash flow. For most businesses, the Days Sales Outstanding (DSO) is over 20 days, according to recent Forrester research. Large businesses with more liquidity need to think carefully about how quickly they collect payments and the impact of cash flow on their growth strategy.
Lots of factors impact the speed of payment: how much control you have over when your customers pay (are they using a push or pull-based payment method?), if the payment needs to be approved, how many parties are involved in the process and what’s involved in clearing the funds for payout.
5. “How is your method going to reduce my payment failure rate?”
No payment method has a 100% success rate all the time. A failed payment can be caused by insufficient funds in your customer’s bank account, an error somewhere in the payment system, fraudulent intent, or an expired card. UK & Ireland businesses recover 35% of failed payments with a single retry.
As well as understanding how vulnerable a payment method is to these failure points, you should also ask if the provider will charge you when a payment fails? Also, what will they do, if anything, after payment has failed? For example, will they retry the payment; and if so when, how and how many times?
You should also understand how much manual work is involved in supporting those retries, so you can calculate the administrative cost and burden you will likely face in chasing failed payments.
3 ways GoCardless helps businesses maximise payment success
6. “How easy is it for my customers to maintain their payment details so you can continue to collect their payments?”
If your business takes recurring payments - such as subscriptions, instalments and repeat invoicing - you forgo some immediate revenue to collect more money in the long-term. That only works if the customer keeps paying you. Often that’s down to customer choice - do they still value your services? But up to 30% of churn is involuntary, determined by shortcomings in the payment process.
For example, the customer has not provided new card details after their current one expired; the payment needs to be regularly reapproved and the customer has forgotten to do so, or the payment may be cancelled in error because the payer does not recognise what is being bought and from whom. If unresolved, you will be incapable of collecting any more payments from those customers, and they will have involuntarily churned.
7. “How long does it take to receive clear information about a payment?”
The quicker you know about the status of a payment, the faster you can act. If a payment has been successful, and you have the right information about the payer and their transaction, you can reconcile your financials faster. Equally, knowing quickly that a payment has failed, and why, lets you do something about it.
8. “How much will using your solution cost?”
Lots of factors affect the cost of using a payment method. Some come at the start - for example, does the payment provider charge a one-off setup cost; how easy is it to configure the solution or integrate it with other systems you use; and what’s involved in complying with laws and regulations in each country you have customers? Other costs are ongoing, such as the fees you’ll pay your provider, and the workload involved in the day-to-day management.
