Co-founder & CEO of Zuora
There have never been more ways to pay someone. MasterCard is working on a new system that confirms transactions with selfies using facial-scanning technology. Apply Pay recently launched in the U.K. in July, joining a crowded European global payments ecosystem. BitCoin is getting more attention as a result of the Greek crisis.
These new technologies will join the roughly 200 different types of electronic-payment methods that currently permeate our world. With so many options and use cases, it can be daunting for any global business to select the right payment methods. It’s more complicated for software-as-a-service and other subscription businesses that have to manage more sophisticated payment processes than traditional, one-time-sale models.
In such a scenario, how can these companies find the right global payments for their businesses? For starters, the most important criteria to assess global payment methods are push vs. pull and one-time vs. recurring payments.
If you’re a merchant, push means that your customer has to actively send you the money. You have to request it, and your customer has to make the effort to put forward a discrete payment.
Cash, wire transfer, checks, coupon payment methods such as Boleto in Brazil or BVR in Switzerland are good examples. Generally speaking, the majority of payment methods are push-payment methods, and these are well suited for one-time payments, as few customers are willing to send payments on a monthly basis.
Pull-payment methods are better suited for subscription businesses since they allow the merchant to actively withdraw the money themselves. Agreements need to be put in place first, but a merchant has all the information and agency needed to withdraw the money from a customer’s account.
There are several pull-payment methods that work well for SaaS and other subscription businesses. While many are regional — they’re popular in one country but not another, a few are global in nature. Let’s take a look at the leading pull-payment methods for subscription businesses:
1. Credit cards
When you look at the most popular global payment methods today (particularly in ecommerce), credit cards are at the top. A pull-payment method, credit cards are excellent for recurring payments for two reasons. First, payments made against a credit card are guaranteed up front, eliminating settlement issues. Second, once a customer agrees to have you use their credit card numbers, you can keep pulling from that card on a recurring basis.
There are a couple of downsides however, such as fees, fraud and charge-backs, but these are relatively minor given the convenience to customers and the benefits listed earlier.
2. Bank transfers
Bank transfers are another popular recurring pull-payment method where the customer gives you their bank account information, and you’re able to pull money directly from their accounts through a secure network connection. Most of these direct-debit methods allow you to pull payments on a recurring basis. The key benefits of bank transfers are lower fees and the popularity of this type of payment method around the globe.
The biggest caveat with bank transfers is that there are many different flavors, and how payments are processed will vary by country. A few that come to mind are ACH (Automated Clearing House) in the U.S., PAD (Pre-Authorized Debits) in Canada, SEPA (Single Euro Payments Area) in Europe and U.K. Direct Debit in the U.K.
The complexity of handling SEPA bank transfers is much greater than processing ACH payments. As a merchant who supports bank transfers, you have to carefully manage which countries and types you’ll support. In some cases, you simply must have the ones that are commonly used in your core markets even if they are used only in one country, for example, iDEAL in the Netherlands.
The third important global payment method to consider is an electronic wallet, or ewallet, which is a third-party payment method funded by a variety of means. There’s always another payment method that sits behind it (such as a credit card or a bank transfer), but the company providing the ewallet handles all the complexity, security and process of the payment transaction.
PayPal is by far the most popular global ewallet today. While its ecommerce reach rarely exceeds 20 percent of any given local market, it’s essentially in every country and has a proven track record. Other rising contenders include Google Wallet, Amazon Payments and Apple Pay, which are all expanding their reach and adding recurring payments support as well.
As more and more people embrace subscriptions for services or products that are one-time purchases today, we’ll see most spending transpire with regular vendors on a recurring basis. Broadly speaking, this means:
- Recurring, pull-payment methods will continue to gain market share.
- Simpler, consistent user experiences will win over fragmented and regional methods. Credit cards will continue to remain very popular and major ewallets will gain ground. Bank transfers will continue to rule in certain regions, but global standards around authentication and guarantees will need to emerge for this payment method to gain more acceptance.
- In the long term, we’ll likely see an ewallet payment method gain significant market share, just like Alipay has in China. The simplicity for merchants, and the flexibility for customers to fund the wallet by a variety of methods seems to combine the best of both worlds. The key will be to figure out the fees and security aspects, so there’s confidence in the market to use it.
SaaS and other subscription businesses will do well to carefully analyze and assess payment options to determine what’s best for them and their customers.
As my colleague Iain Hassal rightfully points out, “Nailing down the right payment strategy is not only critical to doing business globally, but it’s also one of the easiest things you can do to grow your business.”