The card-based payments industry has evolved a lot from its founding days in the 1960s and is now a huge and important service powering commerce locally and globally through web, mobile, in-person, and increasingly in combinations of these modes of payment.
The modern payments industry—powered by card networks such as Visa, MasterCard, American Express, and others—has gotten complex, as does anything growing, reacting, and adjusting to changes in needs over time. Here’s what it looks like:
Payment networks and brands have worked hard to make sure that consumers have great experiences paying for goods and services with cards. However, with at least five parties in the flow—merchant, merchant acquiring bank, card network, issuing bank, and cardholder—a lot of data can get lost in between.
Companies accepting card payments don’t inherently know much about their customers’ payment card or the issuing bank behind it, and they must choose to accept or decline transactions across lots of different contexts. This creates potential for negative customer experiences when actual customers get declined, and it creates financial risk for businesses if customers are fraudulent. These types of challenges in traditional face-to-face commerce are not as problematic because you can often talk to your customer in the moment, but in customer-not-present transactions knowing more about how the customer is paying makes all the difference. Additionally, everyone has to make a decision when money is on the line: the business wants to maximize their sale for the lowest cost, and the bank of the cardholder wants to maximize their revenue at the lowest risk.
We built Parrot because understanding what type of card a customer is using is the foundation for improving payments performance and managing user experience and cost. This critical data provides greater clarity to businesses processing card payments so they can better decide how to execute payment and customer retention strategies as well as to understand where they have opportunities or problems. We see this as the beginning of delivering Pagos’ mission to provide greater knowledge and better tools which help companies that accept payments accelerate their growth and create long-term customer relationships.
How does the type of payment card impact experience, performance, and cost? Let’s take a look at each aspect.
The type (i.e. credit, debit, prepaid) and product (e.g. traditional, signature, business) of the card being used by a customer as well as where it comes from (i.e. local or cross-border) matters to issuing banks who are making decisions about whether to accept or decline transactions. Issuing banks will have different appetites for accepting or declining transactions based on the type of card and the economic incentives (i.e. interchange) relative to the risk of the transaction.
Companies/Merchants: understanding how many declines you have by count, value (USD, EUR, GBP, etc), card type, location, card brand, and even by bank can highlight opportunities to adjust how you configure your payment stack and process your transactions. Ultimately you may be sitting on opportunities to increase your revenue or lower your costs by adding this data to your analysis and comparing payments performance at this level.
The network (e.g. Visa, MasterCard), type of card (i.e. credit, debit, prepaid), and location of the cardholder (i.e. local or cross-border) are all important in establishing customers’ payment experiences. Customers paying with debit cards only have available funds to draw on when they click Buy. As a merchant, if you know this, you may want to show more payment options upon a decline of this type of card to try and give the customer additional options to pay. Issuing banks in many markets only process customer-not-present transactions when a CVV code is provided, but in other markets issuing banks don’t need this. If you know this upfront, you can make a more streamlined conversion to sale by asking for only what is necessary. In addition, a European customer who has experienced a decline may benefit from being asked to verify their CVV code before re-attempting the transaction.
Companies/Merchants: consider how you might provide more frictionless checkout experiences, tailored customer support messages, or advanced customer support based on where your buyers are located. It may also be worth developing different strategies based on card details if a decline occurs on a transaction: presenting opportunities for a cardholder to confirm their CVV or retry the transaction can make the difference between a lost order or a new customer.
The networks (Visa, MasterCard, AmEx) set different interchange pricing for different card types to incentivize issuing banks to provide more cards to their customers and likewise offer more rewards to cardholders to use those cards (e.g. “3% cashback”). The different card types (e.g. credit, debit), card products (e.g. traditional, signature, business), and location of the cardholders relative to your business (i.e. local vs. cross-border) are all big drivers of the cost of payment acceptance. Furthermore, in many markets there is increasing regulation around certain types of cards.
Companies/Merchants: consider the amount of international, debit vs. credit, card network and card product types you have in your customers’ card mix as a way of understanding your payment costs.
We’ve been working with merchants for decades, and some questions arise regularly:
To start to answer these questions is to start with a better BIN service, and Parrot from Pagos is our effort to bring that to life and provide the best, most-up-to-date service possible to help our customers understand their own customers, manage transaction processing, and feel knowledgeable about what is happening in their payment stack. Try us out!