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Ideas are only worth so much and execution is all that matters.
The past decade was dominated in the payment space worldwide by one player – PayPal. However, PayPal’s horror stories are now widely known, for example, “PayPal’s API Documentation“. But PayPal made payments simpler across 200+ countries, which no one else in the industry has achieved. That scale is not possible without stringent fraud checks they have in place, which could have killed the company.
You can read some interesting insights on the amount of fraud PayPal had to deal with in their early days in the book “Founders at work”. Here is a quote from their founder Max Levchin: ”2000 was basically the year of fraud, where we were just losing more and more money every month. At one point we were losing over $10 million per month in fraud. It was crazy.”
Online & Mobile payments
Online payments have come a long way and today, innovation continues as some companies expound on the mobile payments arena. While PayPal still dominates web online payments, a number of companies have started to challenge its authority.
In recent times, there are a number of start-ups that are innovating in the payments space and challenging existing players, who seem to have stagnated in innovation over the years.
According to a report released by ABI Research, over $119 billion will have been spent by customers on buying goods or services through mobile phones. This number represents approximately 8 percent of the total eCommerce market. Moreover, the smart device boom is expected to continue in 2013. By 2016, physical goods purchased through smartphones (excluding digital downloads) are expected to reach $62.2 billion.
Image source: Statista.com
It has been more than a decade since any new payment start-up really made a mark and suddenly there are many start-ups that are challenging the status quo.
What makes this space very interesting is that there are a number of start-ups starting their own operations globally that are supposedly clones of services that are validated in mature markets and are capturing the opportunity everywhere.
To give you a background, let us look at some of the services that are making a dent in this space in the US and what has helped them gain traction.
Braintree Payments – Online payments
They championed credit card portability and pushed the case for more transparency in pricing and to not hold credit card data hostage.
The company powers mobile and web technology payments for a number of consumer-facing companies including Uber, Angry Birds, Living Social, Airbnb, Fab.com, OpenTable.com and others.
Braintree’s “transparent redirect” allowed businesses to stay PCI compliant while having the flexibility of using API to pass credit card information.
Braintree has already expanded out of the US and recently, launched its services in Australia and before that in Europe.
More recently they changed their pricing model and revamped their signup process to compete with Stripe. They have announced their support for start-ups to process the first $50K USD of transactions for free for 1,000 start-ups in USA.
Talk about competition only making the entire marketplace better for customers.
Stripe – Online payments
Developers love Stripe and its simple API is one of the reasons that the service has a large following.
The company charges 2.9% + 30 cents per transaction to match PayPal rates. Whether your customers are using local or international credit cards, the transaction price is fixed.
Three areas where Stripe differentiated from everyone else:
- Easy signup process with automated checks to on-board businesses.
- Fantastic API and documentation that captured the imagination of developers.
- Support for subscriptions that addressed the needs of the rising developer / entrepreneur group that needs this in the rising subscription economy.
You don’t need to sign up for a merchant account to accept payments because Stripe handles everything including direct payouts to your bank, subscriptions, and saving your credit cards. If you detest the notion of your visitors leaving your website to make payments, you can create your own payment forms to make visitors stay and still not have to worry about PCI requirements.
Stripe has just recently entered the Canadian market and is expected to expand to other countries in future.
Read our post on - Crossing the Chasm – Challenges for Stripe to go mainstream
Square – Card present transactions
One of the biggest barriers that small merchants face is how to accept credit cards payments physically without high setup fee, devices etc.,. Recognizing this challenge, Jack Dorsey went on to found Square.
Square is disrupting the mobile payment industry by allowing just about anyone to be able to accept credit card payments without incurring the prohibitive conventional set up fees. Customers can pay for goods or services through their smartphone, thanks to the Pay With Square app. The company has experienced significant growth over the past year, with employees reaching 400 from 150.
Today, over 75,000 stores in the US use Square’s white plastic card reader that stores to swipe cards. The company ships the mobile credit swipe reader for free to a customer on sign-up. Square is disrupting the POS market by removing the barriers to accepting credit card payments.
The company is rapidly expanding and creating partnerships with major retailers and communications giants in a bid to expand its market and possibly distort the credit card market grip of Visa and MasterCard. Recently, the company sealed a blockbuster deal with Starbucks and AT&T.
PayPal’s mobile solution is one of the leaders in the pack, with transactions worth over 10 million being processed through it every day.
Dwolla – Bank transfers
Many small business owners despise credit card issuers mainly because of their high charges (around 2 to 3 percent per transaction) that hurt margins.
Dwolla is different from most of the web payment companies mainly because of its low transaction fees. The company is going against the debit card industry and is leveraging on its low charges to attract merchants. They are disrupting the entire card processing network with a bank transfer infrastructure.
To use Dwolla, a consumer has to create an account that is attached to his or her bank account. After sign-up, instant payments can be made to merchants that accept Dwolla.
Dwolla can be used to pay for just about anything. You can use it for retail purchases at stores that accept it, peer to peer transactions, online payments, donations to your favorite charity or non-profit and so on.
Imagine this: with credit card you spend $2 to collect a $50 transaction, whereas you just spend 25 cents with Dwolla and anything under $10 is free.
For merchants, Dwolla is a slam-dunk as they can pay as low as $0.25 per transaction instead of the usual 2-3 percent charged by the major credit card processing companies. However, the situation is different for consumers. Consumers who want to borrow and repay over time cannot use Dwolla. Instead, they must have funds in their account. Dwolla is the equivalent of a debit card, not a credit card.
The Future of Web and Mobile Payments
The battle for dominance and disruption of the credit card industry is far from being won. There are many payment gateways both in the United States and overseas that are trying in one way or the other to address the challenges of online payments for individuals and small businesses.
Most of the companies are moving towards mobile payment solutions, which have also caught the attention of the old players like Visa (V.me) and MasterCard (PayPass). The many players in the mobile payments industry may be as a result of the many sub categories present when it comes to payments. Some of the companies that are making a mark in the mobile payment industry include mPowa, iZettle, Intuit GoPayment, PayPal Here and VeriFone.
There are several players coming up and trying to get a head start in their respective markets, instead of waiting for the US start-ups to expand globally. These start-ups have a great chance of applying the learning from US market and implement it better in their respective markets in a much more localized and better way.
- Pin in Australia
- Paymill in Europe (backed by Rocket Internet – Samwer brothers)
- GoCardless in UK
- Many Square clones in different countries.
Did we miss any other important disruption happening in the payment industry. If so, please share with us in the comments section.
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