Payments – the secret solution to improving your bottom line without gutting your tech stack
Ever considered how your customers like to pay? A customer’s payment preference should be an important consideration in any business strategy, but payments systems are often not prioritised or come as an afterthought. Too often, businesses spend time and resources on everything from product perfection to outstanding customer service but forget to consider what happens when it’s time for money to change hands.
Failing to take into account customers’ payment preferences leads to friction in the buying journey. Knowing how your customers prefer to pay can lead to increased conversion, improved customer loyalty, and reduced churn — ultimately bolstering the bottom line, and making it easier to scale locally and internationally.
The go-to payment method is assumed to be credit card, but research suggests that this assumption is increasingly unfounded. Some businesses are using this shift in attitudes as an opportunity to reassess payment options right across the board; and the emergence of open banking will accelerate the uptake of faster, smarter, more secure card alternatives.
Preference is for a more secure and low-cost way to take payments
A recent YouGov and GoCardless survey of over 15,000 consumers across Australia, Canada, Germany, France, the UK, and the US found that bank debit — bank-to-bank direct debit — is the first choice for recurring payments (2nd only in the US).
Consumer preference for bank-debit stems from better security as bank accounts do not get lost or stolen, no or low cost with often no surcharges, as well as the convenience of being able to set and forget.
For merchants, bank debit is automated, cheaper and low touch for paying customers. It is a pull-based payment method so payments, once authorised, are pulled from the customer’s bank account at the time they are due.
Bank debit is particularly effective for recurring payments but is also flexible enough for variable and one-off payments and has higher payment success rates and lower fees than cards.
Credit Cards are still widely used, despite the drawbacks
Credit cards have been the default payment method for most businesses because of high acceptance rates and the issuers’ global networks. However, they have some real deficiencies, and are among the least preferred payment methods of consumers, even in North America.
For merchants, the stand-out issue is cost. Card networks can charge up to 2% per domestic transaction uncapped. For comparison, an account-to-account platform like GoCardless charges 1% + $0.40, capped at $4 per bank debit transaction (with scale pricing available for larger organisations).
Roughly 10-15% of card payments fail because cards are lost, expire, or are rejected by issuing banks. And every failed payment needs to be retried and rectified, adding to the admin burden of trying to recover these failed payments. Small businesses stand to lose $10,500 every year in uncollected payments, while mid-sized businesses stand to lose $38,000 and that’s without considering admin and recovery costs. Failed payments can lead to huge cash flow bottlenecks that stunt growth. Bank debit uses a customer’s bank details which rarely change. GoCardless customers can expect failure rates as low as 3% and even lower when using smart retries.
The stats beg the question: why are businesses slow to adopt bank debit?
Perhaps fears of installation costs are behind a general reticence? But Luke Fossett, Director ANZ Sales at GoCardless says transforming your businesses payment strategy to leverage the demand for bank debit doesn’t mean completely scrapping the existing tech stack. Technology now exists to integrate a bank account solution into a business’s ecosystem.
“We’ve been able to insert our solution on top of a legacy architecture in 30 countries worldwide. As a result, we helped merchants access payment methods their customers have and want to use” he added.
The London-based Fintech works with over 70,000 businesses, processing US$30 billion payments worldwide annually. The company’s technology integrates easily into the systems that businesses rely on to operate. It provides excellent support for merchants looking to do so and offers a choice of approaches.
“We have two ways of being able to work with merchants. One is through direct API integration. The other is via over 350 partner integrations,” said Tanya Martin, Head of Partnerships at GoCardless. “In the instance of these partner integrations, the beauty is, if you as a merchant are already using one of these platforms to manage your billing, you can then access GoCardless through that platform with no further development work required at all. […] “We also have an onboarding team of customer success and solutions engineering to help you through that process, as you do that build or start using GoCardless, to make sure it’s a smooth process.”
GoCardless partners include Xero and Zoho for accounting and invoicing; Salesforce and Asperato for CRM; Martialytics and TeamUp for health and fitness; Chargebee, Recurly, and Zuora for subscription billing; and many more. In addition, it offers any level of DIY for vendors, making adoption as pain-free as possible for the merchants.
Is there value in automating payments?
Automating recurring payments is convenient and saves time for both the customer and the business. Simpler workflows translate to less time spent on trying to resolve payments hiccups and more time on doing what you do best.
“Before GoCardless, our payment process was slow and expensive,” said Sam Caulton, chief finance officer of Re-Leased, a cloud-based management platform for commercial real estate. “But now it’s streamlined and cost-effective – we’ve saved $10,000 a month on bank transfer fees. And rather than having to collect recurring payments by manual methods like bank transfer or cheque, GoCardless enables Re-Leased to collect automated international payments through direct debit.”
The Kiwi company now has more than 1,200 customers across Australia, Canada, the UK, and the US has reduced its average day’s sales outstanding from 50 days to payment terms of just 30 days.
Bank debit is also emerging as the key to international growth
Today’s vendors trade internationally, but the payment landscape has become so complex to navigate that more often than not, businesses end up falling back on the two most expensive forms of payment collection; credit card and bank transfer. That’s according to a YouGov survey commissioned by Wise of 4,835 micro and small businesses across 11 countries. It revealed 54% of Australian businesses said that the cost and complexity of managing international payments scuttled their international expansion plans, preventing businesses from entering a new market (25%), growing their customer base (26%) and buying new inventory (23%).
To remedy this, GoCardless partnered with Wise to make payments effectively as borderless as possible. “We see a huge appetite for small to medium businesses to grow and expand internationally but accepting payments for most customers has been one of the barriers for them to dip their toes into international markets or to maximize the potential of those global markets,” Luke Fosset said.
Wise and GoCardless have created the first multi-currency bank debit network. Previously, businesses could only collect bank debit payments from overseas if they had a local currency bank account or took hefty credit card fees on the chin.
“What we’ve been able to do with Wise is allow, for example, an Australian business to collect a payment from a customer based in the UK in pounds sterling. Then, pull the payment from their UK bank account, convert those funds using Wise back to Australian dollars and settle the funds back to the merchant,” he explained.
“With International Payments, we’re solving two problems: first, enabling businesses to offer the payment methods that their customers prefer, regardless of their geography. And second, offer the payment methods of setting up overseas entities or bank accounts to accept international currencies, and then having to settle it back into their local currency.”
By leveraging the Wise multi-currency infrastructure, businesses of any size can collect one-off or recurring bank debit payments from over 30 countries in eight currencies (GBP, USD, EUR, SEK, DKK, CAD, AUD, and NZD).
But what about tax, and red tape as monies move across borders? “The beauty of using a service like GoCardless is that we take care of all of that kind of regulatory side for you,” Martin said. “You can rest easy knowing that if you use GoCardless to collect the payment, for example, from the US and satellite it into Australia, that compliance and regulatory work has been done for you. And all you have to worry about is your business and collecting your payments.”
Future of payments
Soon Australia and New Zealand will see even more GoCardless offerings as it ventures into open banking and instant direct debit via PayTo, PayID and the New Payments Platform.
GoCardless continues on its mission of making payments painless for businesses by facilitating account-to-account payments — and making the ability as simple as possible. Whether it’s for recurring subscription payments, borderless transactions, one-off payments, or open banking, the pain-free way to do it is GoCardless.
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