In the past, the way in which credit card payment processors made money was by charging transaction fees for every purchase they handled, but that may change in the near future.
There has been a substantial shift between the old techniques for generating money from card transactions and the way new payment processors are charging merchants for accepting debit and credit card purchases, according to a report from Tech Crunch. Many of the new mobile payment processors, such as Square, PayPal and Intuit GoPayment, are now charging lower transaction fees than many of their larger and more established competitors.
Today, these newer companies can afford to charge a flat 2.7 or 2.75 percent transaction fee, rather than those for purchases from typical payment processors, the report said. Comparatively, those are still sky-high when compared with swipe fees around the world; in Australia, they're limited to just 0.5 percent of the transaction's value, and in the Eurozone, similar legislation is expected to be enacted relatively soon.
Why they're able to do it
Meanwhile, the cost per customer who comes to an ecommerce website through Google can be as much as 20 or 30 percent of the purchase price, the report said. But the reason merchants are more eager to pay these fees than the far smaller ones is because of what else they get out of it beyond the dollar value.
In short, the information that comes with electronic purchases such as these can, in many cases, be just as valuable as the money itself, at least going forward, the report said. The data payment processing companies' handle is seen as being extraordinarily valuable to businesses. It can show a borrower's buying habits, including how much money they spend, where they spend it, and even what they spend it on, which can give businesses a more complete picture of what their customers generally prefer when taken as a whole.
Why 'closing the loop' is more valuable
When it comes to online advertising, the problem for years has been that there was no way to tell how effective it was if the customer wasn't buying a product specifically by clicking and buying through that particular ad, the report said. But with the kind of payment data these companies are processing, it may be easier for businesses to close the loop, and identify just how an online ad may translate to a real-world sale.
Therefore, businesses will be able to more efficiently tailor online ads going forward so that they appeal to a broader number of more interested customers, which will increase the value they receive when placing those ads online, the report said. This will also allow them to put the ads on websites that have generated more interest in similar products in the past.
Where payment processors can boost their own revenues
Therefore, in the future, it's possible that the interchange fee structure of the entire payment processing industry could be fundamentally changed, the report said. Merchants generally aren't happy to pay between 2 and 4 percent of the purchase price of their various transactions to processors, and those companies might be swayed to reduce these costs down the road.
Instead, they may be able to increase revenuesby giving business owners more information about their customers and charging them for it, the report said. While there's no guarantee that this will actually happen, the profitability of consumer data will likely grow in the future. Therefore, the shift toward the new, smaller payment processors could drive larger competitors to become more adaptable.
Mobile payment processing systems have become extremely popular in a relatively short period of time, with Square leading the way in terms of the value of purchases processed and overall customers. The startup company is now also branching out in the number of ways it allows its customers to pay for its service, now granting smaller businesses processing less than $250,000 in purchases per year the ability to pay a flat monthly fee instead of 2.75 percent on every transaction.
This type of payment in general is said to be more secure than traditional credit card use, and therefore may be more helpful to both businesses and consumers. However, if you want to make sure your finances are safe, you should also take the time to check your credit report regularly. This will help you to identify any potentially unfair markings that could be dragging down your credit score. If you find any such entries on your report, you may be able to work with a credit repair specialist to get the issue sorted out relatively quickly and easily.