By Jack M. Germain
June 3, 2021 5:00 AM PT
Online merchants are literally at the mercy of the digital payment systems linked to their online stores. For retailers, what happens on the other side of the “pay” button is critical to avoiding approval denials.
Online sellers cannot survive without a strong checkout page. Meanwhile, the payment system that handles most online transactions is 40 years old. Some investors have noticed this. A new behind-the-scenes payment system is slowly taking over.
For example, Fast, a startup that provides online payment and identity products, recently announced the closing of a $ 102 million Series B fundraiser led by Stripe, a former investor in the company. Online payments giant Stripe also led Series A of Fast last year, a deal worth $ 20 million. Fast says he has raised $ 124 million to date.
Credorax, a payment provider for cross-border e-commerce and omnichannel payment processing, has raised the curtain for the E-Commerce Times to reveal the ins and outs of what goes behind the payment button.
The process can be a dizzying integration of many moving parts. Authentication, currency conversions, and approval rates all need to work together to ensure a fast and complete transaction so merchants can take their business to the next level.
The speed with which money moves in a digital economy in transition is a sign of efficiency and health. So what does it mean when $ 18 trillion in business-to-business payments in the United States takes days to settle and land in bank accounts?
For traders, this means wasted efficiency and wasted time putting money to work. For consumers, such delays mean they don’t have access to the funds many of them currently need. For both parties, this also means failed transactions.
“Not surprisingly, accepting and authorizing payments are among the biggest hurdles any merchant has to overcome,” Igal Rotem, CEO of Credorax, told the E-Commerce Times.
Slow motion money
This process evolves slowly. However, big moves this year could start to happen as the first new payments system to be launched in the United States in 40 years gathers momentum.
Developed by The Clearing House, RTP (Real-Time Payments) is backed by major US banks and has been adopted by nearly 40% of large companies in the United States, according to Dimitri Dadiomov, co-CEO and founder of the platform. form of Modern Treasury payment transactions. .
RTP represents the new frontier of payments and will likely become the new normal. Already, more than a third (36%) of large businesses in the United States are using real-time payments, which was launched in 2017 in the United States. However, beyond the US borders, RTP is used much more.
Modern Treasury supports RTP and makes it easier for businesses to work with banks. The process automates and accelerates payments. The modern treasury recently raised $ 38 million in venture capital and is growing more than 24% per month, according to Dadiomov.
The importance of RTP is likely to expand, he predicted. Levvel Research’s “Real-Time Payments Market Report 2021” showed that 66% of businesses in the United States say they are likely to adopt RTP within the next two years. The technology has already gained momentum in other countries.
Modern Treasury supports RTP for corporate clients who want to expedite Automated Clearing House (ACH) or wire transfers. ACH is a banking network that coordinates electronic payments. ACH, wire transfers and checks account for 76% of all money flow in the United States, Dadiomov said.
“These are technologies that haven’t had major updates for decades. Payments are slow, cumbersome to process and do not allow real-time viewing of cash. RTP is a big step in speeding up and modernizing payments, accounting and money movement, “he explained.
New benefits, less risk
RTP allows financial institutions and businesses to send and receive payments in real time. The process is much faster than checks, ACHs, or wire transfers, which can take up to three days to clear. Every year, more than $ 18.5 trillion in B2B payments are sent to the United States, and half of them are still made by paper check, Dadiomov noted.
Besides speed, RTP differs from the way B2B payments are made today in that it enables three new processes.
One is better data to generate better information. With non-RTP transactions, vendors can, at best, have their customers’ payments credited to their bank account. RTP enables data transfer along with payment, so businesses have visibility into invoices, dates, purchase orders, etc.
“This gives companies an edge in meeting customer needs and has the potential to improve their financial function and decision making,” Dadiomov said.
The second new process ensures continuous availability. RTP is always available. This gives merchants more flexibility than traditional banking hours which limit non-RTP payments.
The third benefit is the mitigated risk of default. RTP payments are irrevocable. Payment instructions are only sent if there are sufficient funds. This reduces the risk of payment exceptions.
Make online payments transparent
From a merchant’s perspective, three levels of optimization are necessary for a smooth payment experience. These are enhancements to issuer verification, integration and responses offered by Rotem of Credorax.
They can provide the most seamless experience for a customer, increasing the likelihood of completing a purchase. It will also make it easy for traders to track their transactions and get the most out of their buyers.
Payment optimization reduces the number of steps a consumer has to take when paying for goods online. Less steps mean less frustration and fewer abandoned baskets.
“Providing customers with preferred local payment methods and multiple currency options is essential to ensuring customers have a convenient and familiar payment experience no matter which country they shop in,” Rotem said.
Integration optimization is about not forcing consumers to put their credit card information into a website they don’t trust. It is therefore essential to ensure a payment gateway that is properly configured and integrated into the payment process and looks the same as the rest of the experience.
This optimization should include the authorization process and structured data that informs merchants of their business transactions. This way, merchants can quickly identify where rejections are coming from in the processing chain, what is the reason, and monitor the smooth running of transactions.
The last cog in the payments wheel is issuer optimization. Once the payment has passed through the gateway and the acquirer, the final decision on whether or not to authorize a transaction ultimately rests with the sender.
“It is interesting that each transmitter has its own rules. They are complicated and change regularly, which makes them difficult to follow,” observed Rotem. “To combat this, traders must continually educate themselves on how issuers think about and understand the reasons for refusing transactions in the territories they trade.”
Behind the pay curtain
What happens on the other side of the payment button is essential. A labyrinth of steps must run smoothly to complete transactions. Even if a customer enters into a purchase, enters the details and clicks the checkout button, the order won’t necessarily be successful, as all kinds of variables like clearance rates come into play here, Rotem warned. .
Several parties are involved in each transaction. Everyone has the power to derail a transaction and impact a merchant’s approval rates. This is why it is so vital that merchants work with a payment partner who takes care of this process for them.
“However, this is the part of the process that customers never see. They don’t understand why their transaction was declined has nothing to do with the merchant or the retailer. But unfortunately at this point in what concerns the customer, the damage is done, “he explained.
Customers cannot be expected to make the effort to try shopping with a merchant again with whom they were unable to complete the transaction process, he explained.
“This is why it is essential for merchants to optimize their checkout process. Because by not doing so they risk losing conversions and the cumulative impact of those conversions down the road,” he said.
The RTP advantage
RTP is inevitable because the speed of business and savings is only accelerating. RTP is a matter of timeliness because payments happen instantaneously, Modern Treasury’s Dadiomov noted.
Companies cited immediate access to funds as the most attractive benefit of RTP, according to the Levvel report. Additionally, 76% of businesses believe that RTP will provide them with a competitive advantage.
As more companies adopt, others will too in order to stay competitive. In addition to RTP, the Federal Reserve is moving forward with its real-time payments system, FedNow, which is due in 2023 or 2024.
For consumers, real-time payments will mean instant access to funds without waiting for checks to clear. For some consumers who live paycheck to paycheck, this could reduce the need for expensive short-term loans or the risk of bank overdraft.
In addition, RTP will speed up the operational requirements of fundamental back office processes such as accounts receivable and accounts payable, potentially leading to lower costs. It goes without saying that these savings can lead to increased added value for their customers.