Given the growing demand for all kinds of cashless payments and transactions, more organizations find themselves in need to improve and extend their payment options. That’s where payment providers step in. These companies not only bring flexibility to merchants and their customers and revolutionize the way we transact and pay but also capitalize on this opportunity themselves.
Indeed, the digital payment market is booming – in 2021, it was valued at $89.6 billion. What’s more, the increasing number of online transactions, the growth of e-commerce, and the shift towards cashless payments are expected to drive even bigger growth of the sector which is projected to reach an overwhelming $228.37 billion by 2028.
The primary source of payment processors’ revenue is a percentage and a fixed fee on every transaction processed. They also earn on cross-selling additional products to financial services companies already integrated with their payment solutions.
Focusing on what brings you money is natural for a business. However, when the management puts all their effort and attention into some parts of the business, they often neglect other important aspects of the business that are necessary for its overall success and sustainability. That’s where revenue leakages occur.
We conducted thorough research and identified 9 sources of revenue leakage for payment services providers. To help companies recover losses, our experts offered possible solutions for each issue. Read on to learn what makes your company receive less and how you can fix it.
Revenue leakage source #1: Limited payment options
Limited payment options can negatively impact a payment provider’s revenue in several ways:
- Declining sales and missed opportunities. Customers are more likely to abandon purchases if they cannot use their preferred payment method. That’s why merchants choose providers with a wide range of payment options – the fewer you offer, the smaller your customer base.
- Increased competition. Online payment providers that offer more payment options are more attractive to merchants who want to offer their customers a convenient and flexible payment experience.
- Reduced customer loyalty. Customers who aren’t satisfied with the available payment options may switch to another payment provider that better meets their needs, reducing the revenue of the payment provider with limited options.
Solution #1: Offer a wider range of payment options
Payment providers can introduce a wide range of payment options to meet the diverse needs of their customers, improve their experience, and increase adoption. In addition, multiple payment options can help reduce the risk of fraud and increase security for businesses and their customers. Below, we’ve listed the most popular and in-demand payment methods:
• Credit/debit cards – Visa, Mastercard, American Express, and Discover;
• E-wallets – PayPal, Venmo, Apple Pay, and Google Pay;
• Bank transfers – ACH and wire transfers;
• Cryptocurrencies – Bitcoin, Ethereum, Litecoin, Ripple, etc.;
• Virtual credit card;
• QR codes – QR codes can be scanned with a mobile device to make a payment;
• NFC payments – Near Field Communication (NFC) technology allows customers to make payments by simply tapping their mobile device on a contactless payment terminal;
• Mobile payments – payments made through mobile applications such as Google Wallet, Apple Pay, and Samsung Pay;
• Direct debit – payments made by direct debit, a method that automatically deducts money from the customer’s bank account;
• Gift cards – payments made with gift cards, which can be purchased by customers and used as a form of payment;
• Online banking – customers can make payments from their bank account by logging into their online banking portal;
• Billing and invoicing – customers can pay for goods and services by receiving an invoice and making a payment.
Revenue leakage source #2: Lack of security
Lack of security impacts revenue as it can lead to various issues, such as data breaches, loss of customer trust, loss of sensitive information, reputational damage, and legal consequences that can result in financial losses for a payment processor. In addition, companies may have to spend money on remediation and mitigation efforts, which further reduces their revenue.
Solution #2: Enhance security
Payment services providers can implement various security features to protect customer data and prevent financial crime, such as:
• Encryption – to protect sensitive data such as credit card numbers and personal information during transmission and storage;
• Secure Socket Layer (SSL) and Transport Layer Security (TLS) protocols – to establish a secure connection between the customer and the payment provider’s servers;
• Tokenization – to replace sensitive data with a unique token that can be used for transactions without exposing the sensitive data;
• Two-factor authentication (2FA) – to ensure that only authorized users can access their accounts;
• Fraud detection and prevention mechanisms (e.g., monitoring unusual activity and blocking suspicious transactions) – to detect and prevent fraud;
• Secure code (e.g., protection against common attacks such as SQL injection and cross-site scripting, implementation of proper input validation and error handling, etc.) – to minimize security vulnerabilities and prevent or mitigate attack scenarios;
• Risk management techniques (e.g., monitoring and analyzing customer transactions) – to detect and prevent fraudulent activity;
• Network security measures (e.g., firewalls, intrusion detection and prevention systems, etc.) – to protect servers and networks from unauthorized access;
• Secure storage of sensitive data (e.g., a secure data center or cloud-based storage service) – to protect data from theft or loss;
• Secure transmission (e.g., HTTPS) – to protect sensitive data from being intercepted or tampered with during transmission.
Revenue leakage source #3: Limited scalability
The inability to handle heavy traffic and a large volume of transactions leads to delays and errors during peak periods. Hence, customers may experience slow response times, error messages, and other issues. Limited scalability management may also require heavy investments in additional hardware, software, and personnel, which increases operating costs and reduces profitability.
Solution #3: Invest in scalability
To avoid the negative revenue impact of limited scalability, it’s important for payment services providers to regularly review and upgrade their systems and infrastructure to ensure they can handle increasing transaction and customer volumes. There are several ways to improve the scalability of payment providers’ solutions:
• Use a distributed architecture. This allows the system to handle a large number of requests by distributing the workload across multiple machines.
• Implement load balancing. This helps distribute incoming traffic across multiple servers to ensure that no single server becomes a bottleneck.
• Use a caching system. Caching can significantly reduce the load on the system by storing frequently accessed data in memory.
• Optimize the database. Proper indexing, partitioning, and denormalization can improve database performance and scalability.
• Use a microservices architecture. This allows for a more flexible and scalable system by dividing the application into smaller services that can be deployed independently.
• Use cloud infrastructure. Cloud providers such as AWS, Azure, and GCP offer scalable infrastructure that can automatically scale up or down as needed.
• Implement a message queue. This enables asynchronous processing of tasks, which can improve scalability by allowing the system to handle a large number of requests without being slowed down by synchronous processing.
• Implement APIs that are stateless and RESTful, returning only what is necessary.
Which approach is best depends on the specific requirements and constraints of the payment solution.
Revenue leakage source #4: Lack of integration
A lack of integration leads to a lack of functionality and results in a clunky and inconvenient user experience, creating data silos and reducing customer satisfaction while increasing the likelihood that customers will switch to a competitor that offers a more seamless experience. When a payment processor must manually reconcile transactions and perform other repetitive tasks instead of automating them through integration with third-party vendors, it can increase operating costs and reduce profitability.
Solution #4: Integrate with other systems
Third-party integrations help payment providers offer a more comprehensive set of services to their customers, increase efficiency, and automate processes. Payment providers may consider integrating with the following services:
• E-commerce platforms – for seamless payment processing for online transactions;
• Accounting software – to streamline accounting and financial reporting processes by automatically updating financial data;
• Customer relationship management (CRM) systems – to provide a complete view of their customers and their transactions, which can help improve customer service and support;
• Fraud detection and prevention systems – to reduce the risk of fraudulent transactions and protect both the payment provider and its customers;
• Shipping and logistics solutions – to provide customers with a seamless checkout experience, including shipping and tax calculations;
• Affiliate marketing platforms – to track and manage affiliate payments and commissions;
• Digital wallets – to provide customers with an additional payment option and make payment more convenient.
Revenue leakage source #5: Poor customer support
Poor customer support increases customer churn and lost sales and leads to costly chargebacks because customers are unable to resolve their issues through customer support.
Solution #5: Improve customer support & customer experience
For a payment processor, like any other business, it’s important to have a dedicated customer support team to provide help and guidance with implementation, customization, and ongoing maintenance of the service. Make sure the support staff is well-trained and has access to the information they need to help customers effectively. You can also find a list of best support practices to consider and implement:
• Multi-channel support. Offer support through multiple channels such as email, phone, live chat, and social media to reach customers where they feel most comfortable.
• Fast response times. Respond to customer inquiries promptly to show that you value their time and concerns.
• Proactive communication. Keep your customers informed of changes, downtime, and other important information to avoid confusion and frustration.
• Personalization. Address your customers by name and offer tailored support based on their specific needs and preferences.
• Self-service options. Provide your customers with resources like FAQs, how-to guides, and a community forum so they can find answers on their own.
• Continuous improvement. Regularly collect feedback from your customers and take their suggestions to continuously improve customer service.
• Automation and chatbots. With modern technologies, it’s easy to improve customer service efficiency along with cutting personnel costs, increase support accessibility, offer personalized customer experience, and also extract valuable business insights from collected data.
Revenue leakage source #6: Limited analytics and reporting
Some online payment providers don’t have built-in analytics and reporting capabilities, making it difficult for organizations to track performance, identify trends and patterns, and make data-driven decisions. Limited analytics and reporting capabilities can also have far-reaching consequences for payment providers themselves, from missed business opportunities and financial losses to inefficient operations and higher fraud risk.
Solution #6: Implement & improve advanced analytics and reporting
Implementing advanced analytics and reporting can help payment service providers increase revenue by improving fraud detection, streamlining operations, enhancing the customer experience, making data-driven decisions, and gaining better insight into the market. Here are some practical tips that can help payment solution providers create advanced analytics and reports that provide real-time actionable insights to drive informed business decisions, improve operations, and increase revenue.
• Choose the right technology. Invest in technologies that provide accurate and actionable data in real-time. This can include data warehousing, business intelligence, and analytics tools.
• Use advanced analytics techniques. Opt for advanced analytics techniques such as machine learning and predictive analytics to analyze and interpret data, gain insights, and make informed decisions.
• Implement data collection. Set up a robust data collection system to gather relevant information from multiple sources, such as transactions, customer behavior, and market trends.
• Implement dashboards and reports. Develop customized dashboards and reports to present data in an understandable format. Ensure reports are accessible to relevant stakeholders and provide actionable insights.
• Continuously monitor and evaluate the analytics and reporting system to identify areas for improvement and ensure it remains relevant and effective.
Revenue leakage source #7: Complex and lengthy onboarding process
The longer and more complicated the onboarding process, the more resources are required to acquire new customers, which can increase the cost per customer and decrease overall revenue. It also leads to a higher customer churn rate, as it causes frustration and inconvenience for customers.
Solution #7: Streamline the onboarding process
A streamlined and user-friendly onboarding process is important for payment providers to maximize revenue. With the following steps, payment providers can streamline the onboarding process to avoid revenue loss:
• Automation. By automating the onboarding process as much as possible, you can reduce time and effort for both the customer and the payment processor.
• User-centric approach. By making the onboarding process user-friendly by focusing on the customer’s needs and providing a smooth and intuitive experience, you can reduce frustration and increase customer satisfaction.
• Mobile optimization. Optimizing onboarding for mobile devices, which are increasingly used to access financial services, can make the process more convenient and accessible for customers.
• Clear communication. Clear and concise information about the onboarding process and what is required of the customer can eliminate confusion and improve the overall customer experience.
Revenue leakage source #8: Limited flexibility and customization
Limited flexibility and customization make it difficult for businesses to tailor the payment provider’s service to their specific needs and preferences. This negatively impacts payment provider revenue in several ways: customers switch to competitors that offer more flexibility and customization options; business opportunities are lost due to payment provider’s inability to support new business models and payment methods; and it results in missed revenue streams due to inability to meet new market demands.
Solution #8: Invest in flexibility
To maintain a competitive advantage, maximize revenue, and capture new business opportunities, it’s critical that payment providers offer high flexibility and extensive customization capabilities. Here’s how this can be achieved:
• Open APIs. Payment providers can leverage open APIs to enable seamless integration with other systems and platforms to provide greater flexibility to customers.
• Collaboration with partners. Partnering with other companies can provide additional services and features.
• Multiple currency support. Providing support for multiple currencies can help payment service providers meet the needs of customers operating globally.
• Adaptability to changing market demands. The ability to quickly adapt to changing market demands and offer new payment methods such as mobile payments and cryptocurrencies helps payment solutions providers meet diverse customer needs.
• Personalized customer experience. The customer-centric approach enables digital payment service providers to stand out from the competition and improve customer satisfaction.
Revenue leakage source #9: Non-compliance
Failure to comply with local and international regulations can lead to legal and financial issues for a payment processor and its customers. It results in large fines and penalties that can have a significant impact on the revenue. Non-compliance can also limit a payment provider’s access to certain markets, resulting in lost revenue opportunities. It also damages the provider’s reputation and causes a loss of customers. In extreme cases, payment service providers may lose their authorization.
Solution #9: Analyze and fix compliance gaps
To avoid potential revenue loss and provide customers with a secure and legal service, payment-as-a-service companies must comply with regulations. By taking the following steps, payment gateway service providers can ensure their operations are in compliance to avoid potential revenue loss:
• Regularly review and stay up-to-date with regulations. Payment service providers should regularly review relevant regulations (e.g., PCI-DSS, GDPR, SOX, etc.) and ensure that they adjust their practices accordingly to maintain compliance.
• Implement strong internal controls. Regular audits and assessments help ensure that the provider’s operations are compliant with regulations.
• Educate employees. Digital payment service providers should educate their staff on the importance of compliance and train them on relevant regulations and best practices.
• Seek professional help. Professional advice from lawyers or consultants who specialize in relevant regulations will help to minimize compliance risks.
• Keep records. Payment service providers should maintain accurate and up-to-date records of their operations and transactions to demonstrate compliance.
As you see, there are various ways for payment processing companies to inadvertently lose profits. Some of the abovelisted points, such as poor customer service or complex onboarding process, affect revenue indirectly, while others, such as non-compliance and limited flexibility, make companies spend on associated issues. By addressing these areas and implementing solutions to prevent revenue leakage, payment providers can improve their overall profitability and sustainability in the competitive payment processing industry.
At Itexus, we help businesses increase revenue by implementing advanced analytics and efficient customer support systems, integrating best-in-class third-party providers, identifying and fixing security gaps, and more. However many issues causing revenue leakage you counted for your business while reading this article, we’re here to help – contact us to fix that leaking tap.