So, you’ve built a great product or platform, attracted customers from other countries, and convinced them to sign up. Now, can you actually accept their money? Global payments are tricky, and are often a major speed bump on the road to international growth.
To shed more light on the topic, we spoke with Jonathan Rat, a product manager whose recent expertise, formerly at SurveyMonkey and currently with Uber, focuses on global payments. We asked him to help us understand how global payments work, why it matters, and what the best practices are.
How Digital Payments Work
First let’s start with the digital payment process. It isn’t as easy as simply having a user type in their credit card and having your bank accept their money. There are a minimum of four stakeholders involved:
- The processor that will process the payment made by the user on your website
- The acquiring bank (your company’s bank)
- The card network (such as Visa, Mastercard, AmEx)
- The issuing bank (the user’s bank)
Between these four stakeholders, there are at least 12 interactions that take place in order for a user to pay via your website. While this might seem overly complex, it can actually be a good thing. The more you control the process and internalize it, the more space you have for optimization.
Global Payments Add Complexity
For global payments, the equation gets even trickier. Your payment workflow should not only accept local currencies, but also local payment methods. Currencies alone are diverse. There are 180 currencies in the world, and SurveyMonkey supports 40 of them. When it comes to payment methods, the landscape is confusing too. You might think the developed world has standardized on credit cards, but actually, that isn’t so. Countries like France and Germany have their own local solutions. France mainly uses Carte Bleue (a combination of a credit and debit card), while the latter uses ELV (direct debit).
However, even when a person owns a credit card, they might not be able to pay in foreign currencies.Take Brazil for instance, where 50% of adults have a credit card, and only 30% have an international credit card. Even cards that can accept foreign currencies don’t always work, because the user may have to contact the bank for each foreign transaction to enable it to proceed. (See Five Considerations for Growing Your Digital Company in Brazil)
In Brazil, local credit card brands, such as Elo, Hipercard, and Aura are much more common, but they only can process transactions in Brazilian Real (BRL). However, because the acceptance rate for these local cards is high, the limits on the cards are quite low, and international web-based transactions are frequently declined. If your company has a B2B offering, for Brazil you’ll need to accept Boleto, which is a more common payment method for business payments, but is also sometimes used by consumers. (See how Skype accepts Boleto.)
How Global Payments Boost ROI
Whether your business model is B2C or B2B, you’ll need to localize your payment methods as early as possible if you want to be successful in local markets. While the amount of work it entails is considerable, not doing so can be a major blocker to international growth. In fact, you might not even realize the revenue you’re missing out on.
As Rat explains, “At SurveyMonkey, in countries like the UK, Canada and Australia, accepting local payments generated a hockey-stick curve to our local revenue.” He adds, “Generally, we see a boost of 20 to 30% in local revenue each time we add a new currency or local payment method, when it’s accompanied by a good marketing campaign.” Airbnb’s efforts to “Brazilianize” their payments is a strong example, and even got them a local feature in Fast Company.
Why does local revenue increase with global payment and currency options? There’s the obvious answer, that you’re making it easier for your customers to pay. But there’s another reason. Building an in-house global payment infrastructure enables your company to optimize the payment process and get payments safely across the finish line, which has a very real impact on the company’s bottom line as international revenue grows.
Optimize the Process
As an example of how a company can optimize their own payment process, Rat highlights the importance of a retry model. He elaborates, “With a retry model, when a payment fails, you’ll be able to retry it with another processor, and in the case of a recurring payment, at another date. This helps you reduce the number of payment fails.” Each retry is carried out by payment processors.
How many processors do you need? It depends on your business model, which markets you’re in, and the volume. SurveyMonkey has four different processors, while Netflix has 15. The more currencies and payment methods you accept, the more ways payments can fail. However, if you have built your own system and have several processors, you’ll be able to execute retries more frequently, and therefore your company will be more successful at processing international payments. Rat recommends every currency be processed by at least two different processors to increase your chances of success. Having a strong retry model is absolutely crucial for any business model that relies on recurring payments.
Rat suggests looking at the following global payment processors:
In addition to processors, another key area to be aware of is Account Updaters. These are mainly used in the US, Canada, Ireland, the UK and Italy. With an Account Updater, when a card expires, is cancelled, or details change, the network will automatically update the new paying information of your customer. This reduces the rate of authorization failures (which enables you to retain more revenue), and ultimately means less manual work for your accounts receivable and collections staff, which also reduces costs for your company.
As you think about ROI, and before you begin implementing, make sure you’re prepared to measure the results of your work. In addition to tracking impact on local revenue, Rat suggests that you consider tracking authentification rates, cost per transaction rates, and failed retries.
How to Implement
Get ready for a long ride. There are no quick fixes when it comes to implementing global payments. To build out a full structure, Rat estimates that it can take approximately 10 months. He outlines three critical steps:
- Negotiate terms with payment processors. Get your contracts ready, and assign someone on your team to own these relationships. Usually, contracts are based on a flat fee and a percentage of the transaction amounts.
- Build your internal infrastructure. You’ll need to create an infrastructure to fully cover the payment process. This means you will need to assign engineers who will build the platform, maintain, and optimize it.
- Figure out your legal and tax structure. When you receive payment in another currency, you’ll need to make sure you’re complying with local and international taxation laws. Most US companies open offices in Ireland that receive all non-USD payments. You will need the help of internal or external international tax specialists to determine the best route for your company.
Once you’ve carried out these three key steps, adding new currencies or method payments will be, for the most part, just a matter of turning it on when needed, and can take less than a day to implement in some cases. Understanding the legal and tax implications may take a longer timeframe and more prep work.
Determine the Best Timing
The decision of when to offer global payments is based on your company’s unique metrics. However, here are some questions you can ask to guide your decision:
- Revenue. Is your local revenue significant? How fast is it growing?
- Market. How big is your addressable market? (See How to Choose Countries for International Expansion)
- Engagement. How engaged are your local users? (See How Evernote Empowers Users for Global Growth)
- Churn. What is your local users’ churn profile?
- Signups. If you have a freemium offering, how fast are sign-ups growing? What is your market penetration in terms of sign-ups?
- Conversion. What is your total number of converted free to paid users? What is the ratio free to paid users? What is your ratio of signups to revenue?
- Payment Page Performance. Is there any region where the drop-off rate on the payment page is higher? Is currency or payment method a barrier to purchasing?
Once you obtain this data, you’ll be able to compare it to your core market and your growth goals, which will help you decide when to offer a new currency or method of payment.
One important caveat. Many SaaS companies find in the early stages of global expansion that many of their international customers are willing to work around their lack of global payment offerings. Early adopters often have a high tolerance due to their enthusiasm for the product itself. However, as they further penetrate a new market, they notice that the tolerance of mainstream buyers is a lot lower, and customers demand that the company make it easy for them to pay, lest they take their business to a competitor.
Localize Your Billing and Pricing Strategies
Global payment strategy doesn’t begin or end with just the payment process. Your company’s billing strategy is also critical to convert a local user into a customer. Pricing strategy also has to be adapted locally. Netflix is famous for its pricing strategy, with prices varying widely in different regions. Evernote also adopted this strategy. The purchasing power of your customers is not equal everywhere, so you should adapt your prices to your local markets. To do so, you should talk to local users, understand the local economy, and your competitors’ local pricing strategy.
Also, you’ll need to adapt your billing page too. People’s buying behavior is influenced significantly by their own culture. For instance, some nations will more naturally buy services monthly, whereas other would prefer an annual fee. These habits can vary if they are buying a service or a product for their own use or for professional use. It is therefore very important to A/B test and adapt all the pages of your buying process for local markets.
Advice for Success with Global Payments
What advice would Jonathan Rat give others, based on his experience with global payments? It boils down to four key things:
- Do your homework. Really learn about each market you are focusing on in great detail. Talk to companies who have done it before. Interview your partners. And most importantly, talk to local customers and people on the ground, who will give you the best perspective.
- Build a strong team. Know that you can’t do this without relying on the help of others. You’ll need to work with payment processors, international tax specialists, local marketers, and others to ensure success.
- Think long term. Global payments are a long-term project. This shouldn’t be an experiment, but rather something you’re prepared to invest in for the future.
- Be data-driven. Use data to make your decisions regarding global payments, and not just when you’re getting started, but after you implement as well. Every day, look at your local data regarding payments, along with your global data. Update your plans and react accordingly.
The closer you get to your customer’s wallet, the more impact it can have on your own business’s revenue. As you work to help your company expand internationally, advocate for global payments to be a high-visibility undertaking that can make a huge impact to your bottom line.