In the modern world, processing payments has become one of the cornerstone activities of all society. A huge number of websites now feature some form of e-commerce, meaning that there has to be a way for customers to make payments and for the business to accept payments online.
This gradual change has ensured that there are now a lot of different ways for payments to be carried out. Online businesses have plenty of options at their disposal, which in turn gives customers a wide range of choice. If you’re not quite up to date with how different payment methods work, we’re going to cover the main points so that you will be completely up to speed.
PSP vs E-Wallets
PSP stands for Payment Service Provider. This is essentially a direct transfer from the customer’s credit or debit card to the bank account of the vendor. It permits a significant number of services that can benefit both the customer and the business. For example, if the business offers a subscription based service, then a recurring monthly charge can be applied against the card. Payments are usually carried out instantly to the vendor, using markers on future amounts in the customer account. However, refunds and withdrawals for customers will often take much longer to be processed.
E-wallets are the relative newcomer on the payment scene. These are basically virtual accounts for you to use in place for traditional bank cards or transfers. Customers fill them up using money from their bank accounts and can then spend that money at websites which accept the e-wallet. While many people see this as adding an unnecessary middle man to the transaction process, others believe that it offers an extra layer of security by keeping bank details hidden from the end vendor. There is also a significant amount of extra convenience from using an e-wallet as users can use a simple login to make payments and don’t have to enter card details each time.
What are Acquirers?
Acquirers are the bank or other institution within the financial sector that carries out payment services for online stores. It is essential for PSP methods to have an acquirer or the direct link between the vendor and the PSP can’t exist. Possibly the most famous acquirers in the world are Visa and Mastercard. The acquirer usually makes money by charging the vendor additional fees for any transactions that take place.
Without an acquirer, the online vendor wouldn’t be able to get the direct link to customers accounts and the payment wouldn’t be processed. So while it does increase the costs to vendors, it also provides an essential service: without them, the payments would just vanish into the ether of the internet.
How do Aggregators work?
Payment aggregators are middle men that allow online merchants to accept payments without having to set up an account with a bank association. It basically means that when a customer carries out a transaction with a website, the payment aggregator is paid: the aggregator will then pay the money to the vendor afterwards.
This means that online businesses can receive payments without having to pay any additional fees that may come from using a traditional acquirer. Of course, the aggregator will also take a cut of the money as payment for their own services.
The vendor in this case also has to wait for the aggregator to send the funds over to them. The majority of aggregators will release funds quickly, within two business days, but some may wait until the end of the month in order to transfer funds and complete all their orders at once. This can sometimes lead to cash flow issues for companies, so if you are thinking of using an aggregator, it’s important to check in the terms and conditions what the payment schedule is.
There are also technical aggregators available. These companies operate in conjunction with payment providers to offer an aggregation service. This works essentially as an extra middle man, but doesn’t always mean increased costs. Companies such as DevCode offer this service and use integrated management software which helps ecommerce businesses to reduce the length of time required for payment management. This helps to keep costs lower, despite there being an additional link in the chain.
Merchant Category Codes
When an online business sets up payments, it is assigned a ‘merchant category code’. This allows the business to be categorised by the acquirer or aggregator. Online gambling sites, for example, are given the code 7995. This is known as a high risk code and is associated solely with games that have cash prizes on offer.
This has two main impacts. Firstly, it means that banks can find it easier to check what a customer has been spending their money on, which could be a slight issue for some people. Secondly, it allows countries that prohibit card payments for online gambling to block those payments from taking place.
On the whole, this categorisation means that regulatory licenses are protected more robustly and it’s harder for merchants to break laws.
The high risk code also goes some way to explaining why it costs so much more for iGaming merchants – compared to owners of regular online businesses – when it comes to processing payments. A typical processing fee can reach around 1.5% more for an iGaming merchant than it would for a standard merchant.
This is because there is always an inherent risk with iGaming merchants: a deposit isn’t necessarily a sale. The player making that deposit could end up winning big and taking out more money than they put in. This will obviously cost the iGaming merchant. These risks mean that payment processing services could end up with an unpaid bill at some point in the future. As such, processing fees are increased to offset this risk.
This also means that iGaming businesses could end up losing a big chunk of their revenue due to processing fees. This is why some online casinos charge an additional fee when players make more than one deposit or withdrawal within a 24 hour period: it’s so that the player is covering the additional cost that the platform is incurring through taking the deposit or withdrawal.
Other Payment Methods
Of course, in the modern world, payment methods have evolved in a big way. Debit and credit cards are no longer the only way to make a payment online. Newer, cheaper and more efficient payment methods have started to appear on the horizon. These offer players and merchants a wider array of choice, and in some cases the processing fees are significantly lower or even non-existent.
Prepaid cards are a way for players to make deposits to online casinos without their bank having a record of the payment.. It essentially works very similarly to a standard debit or credit card: the major difference for players is that they have to fund it (load it with cash) before it can be used. Once loaded, payments from these cards are processed in a similar way to a credit or debit card. Due to the lack of flexibility they offer, prepaid cards remain one of the less popular payment methods among players.
E-wallets offer another way to make payments to online merchants. They are quite similar to prepaid cards in some ways, but offer a lot more flexibility. It’s expected that e-wallets will be the long term preferred approach for the majority of payments over the next decade. Companies such as Alipay in China have already swallowed up huge shares of the market in their chosen geographies.
The payments tend to be made at a much faster rate than more traditional methods, with some e-wallets offering withdrawals that are processed instantly. In terms of flexibility, e-wallets are already surpassing more traditional services. For example, people have the ability to pay for bills and taxes using some e-wallets: it’s because of this that a large number of iGaming operators have chosen to allow e-wallet payments on their sites.
Over the last few years there have been extremely fast levels of growth for e-wallets. This has mirrored the upturn in people using online shopping: as more people migrate to carrying out their shopping online, it’s likely that the trend of using e-wallets in place of traditional bank cards will continue into the future.
This is a much less developed method of payment. Cryptocurrency is understood far less by the general public than other payment methods. In a world where some people still struggle with the technical nature of using e-wallets, cryptocurrency can often be seen as an intimidating new world.
However, when it comes to actually carrying out payment processing, crypto is a much faster method and, in some respects, offers increased levels of security. It would be unfair to expect widespread acceptance of cryptocurrency as a payment method in the near future – it is still in its infancy after all. But even so, its use has already been adopted at many different iGaming operators.
With instant payments offered to users, it certainly has a lot of potential. However there are still significant question marks over whether it is stable enough to become a mainstream alternative to traditional payment methods.