Online payment is currently the norm for people and businesses. Overall, e-payment transactions grew by 19 percent in 2021. Larger companies usually deal with high-volume transactions daily, but they often encounter fees that decrease their profit margin.
Online transactions incur fees like monthly/annual fees and extra fees such as fraud protection and recurring billing. Those fees may seem insignificant at first. But if businesses let them accumulate, they can eat up the operation budget.
Given these challenges, businesses are looking for ways to optimise their payment processes. This is where payment gateways come in.
Payment gateways enable a range of e-transactions like credit cards, debit cards, and digital wallets. Companies can streamline their payment operations, possibly negotiate better fee structures, enhance security, and improve the overall efficiency of transactions.
Understanding margin erosion
Margin erosion is a big challenge for businesses. It is a gradual decrease in profit margins caused by inefficiencies or increased costs.
Maintaining a healthy profit margin is very important. A sufficient margin means that the business can cover its operating expenses, invest in growth opportunities and withstand fluctuations. A good margin can also increase investors' confidence in the business.
Meanwhile, even small reductions in profit margins can have a compounding effect over time. This means that an initial minor loss can escalate and damage the company’s financial state.
Pitfalls of traditional payment processing
One way to prevent margin erosion is to use an efficient payment processing system. This might be difficult for companies that are still using traditional payment processing. The outdated system can increase operational costs, hinder scalability, and prevent integration with e-commerce platforms.
The traditional system usually has slower transaction times, leading to lower possible income. This can also negatively impact customer experience and potentially cause a loss of loyal customers. The inefficiencies can also increase operational costs due to the additional time and resources required to manage this system.
Customers can also encounter ‘hidden fees’ when using the traditional payment processing system. These hidden fees can accumulate over time and degrade profit margins. They can be gateway fees, international transaction fees, or chargeback fees. While these fees might seem negligible in isolation, their cumulative effect can be substantial. Over time, it may lead to margin erosion.
Key features of modern payment gateways
Dynamic currency conversion
Modern payment gateways have dynamic currency conversion (DCC) that allows customers to make payments in their local currency. This improves transparency by allowing customers to view prices. There is no need to check the currency conversion manually. DDC can improve customer satisfaction, attract a broader international clientele, and potentially increase sales.
2. Fee transparency
Transparent fee structures are crucial for building trust with customers. Payment gateways that comply with the Payment Card Industry Data Security Standard (PCI DSS) are often more upfront about fees. Especially compared with a traditional payment system that has lots of hidden fees.
3. Fraud protection
The advanced technology used in modern payment gateways, such as artificial intelligence (AI) and machine learning, increases security. The technology analyses transaction patterns in real time and identifies fraud based on an algorithm. This fraud protection technology can improve businesses’ reputations and maintain customers’ trust. Meanwhile, this detection system is less available in traditional payment gateways.
Use cases
Unnamed companies in the UK that focus on technological solutions for B2B and B2C customers have improved their operational performance by developing their payment gateway systems. Initially, companies face high costs when integrating third-party payment providers into their software systems.
To address this, DataArt decided to create a custom payment gateway to reduce fees and enhance efficiency for the companies. Integrating 3D Secure 2.0 and American Express expands the payment options beyond Visa and MasterCard. This integration also ensured compliance with new market regulations, in addition to faster payment processing and flexibility.
Meanwhile, the MasterCard gateway has also helped many companies solve payment challenges and grow their businesses. The gateway helped Bank Alfalah grow its market share and revenue.
“We are now the largest e-commerce service provider in the industry with a volume base of more than 53 percent and a merchant base that, if you include payment facilitators, we are enabling more than 70 percent of the market,” said Bank Alfalah business head Muhammad Awais Zafar.
MasterCard gateway also helps businesses secure commerce and protect their customers. With the gateway transaction risk management, the National Bank of Egypt reduced its fraud and increased approval rates by 23 percent.
Saudi Arabia British Bank (SABB) also saw improvements in fraud detection to protect its customers.
“Being an international company, they are available across the globe, so they are being exposed to all types of threats when it comes to payments, and they do have the countermeasures for those threats. This has given me additional confidence that I’m dealing with the right partner that can help me and protect me from those threats,” said SABB general manager of global liquidity & cash management Yosef Alrugaiban.
The volume of transactions also surged for Maldives Transport & Contracting Company by 72% after the company launched contactless open-loop payments on buses and ferries. This marks South Asia's first multi-modal open-loop transit payment and digital ticketing system, earning Transport Ticketing Global's “Best Smart Ticketing Programme " award in March 2024.
The payment gateway also enhances the customer experience. For instance, Transport for New South Wales (TfNSW) got 90 to 98 percent customer satisfaction rate after implementing a contactless open-loop payment system. This system enables EMV contactless transactions that is fast and easy for the rail, bus, metro and ferry customers.
Modern payment gateways have also evolved to integrate seamlessly with Customer Relationship Management (CRM), Enterprise Resource Planning (ERP), and inventory systems. This unified system improves business efficiency.
Ronin Gallery, a prominent art gallery in New York, has integrated its payment gateway with a new ERP system. The integration allows automated inventory management and financial processes. As manual work has been reduced, the operational efficiency of the gallery has increased significantly.
Another case is KPMG, one of the largest professional services companies in the world. It implemented an Integration Platform as a Service (iPaaS) to connect its accounting software with various payment gateways. This integration helped real-time payment processing and improved financial reporting accuracy.
Future trends in payment processing
Blockchain technology and cryptocurrencies
Cryptocurrency is a decentralized digital payment that is not monitored by any government or institutions. Blockchain is the technology that underpins cryptocurrencies. Together, these systems can facilitate secure and fast digital payments even across borders without fees. It had gained significant popularity, with more than 2.4 million cryptocurrencies existing in 2023.
Although now cryptocurrencies are seen more as an investment option, it is still possible that the popular cryptos are going to be accepted as regular payment in the future. Currently, the most popular cryptos are volatile asses like Bitcoin and Ethereum. However, stablecoins that are cryptocurrencies pegged to a stable asset like the US dollar have also gained traction. More companies and platforms have adopted crypto payments, including major players like PayPal.
Regulations remain a challenge in expanding blockchain and cryptocurrency. As governments continue to adapt to this new technology, future regulatory frameworks will determine its public acceptance.
Contactless payments
Since the COVID-19 pandemic hit the world, contactless payment has increased in popularity. A recent report by Comviva reveals that 27 percent of businesses in the fintech and payments industry already offer contactless payment options. Meanwhile, 36 percent of companies plan to adopt them within 2025, based on the study's survey of over 200 global CXOs.
This form of payment is expected to become more dominant in the future. It has many benefits, such as convenience, speed, and security. With the widespread adoption of near-field communication (NFC) and QR codes, contactless payments are no longer rare in offline stores/businesses.
In the future, the trend of contactless payments with smartphones, wearables, and biometric cards will continue to expand across different industries. Public transportation, hospitality, and healthcare are some areas that would likely adopt contactless payment extensively.
Although businesses must invest in contactless infrastructure to adopt this payment method, the advantages make it worth it. As customers' preferences shift towards fast and convenient payment, contactless payment will continue to become more widespread.
Work with APEXX
Selecting the most suitable payment gateway can become a strategic advantage allowing businesses to improve their margins and increase customer satisfaction. APEXX Global provides a Payment Orchestration Platform that merges payment service providers around the globe into a single point of integration.
It enables one to reach other alternative modes of payment through a single easy API integration. Transactions are also routed to the most effective gateway by APEXX Intelligent Routing Engine, AIRE, increasing effectiveness. This platform aims to maximise conversion rates, minimise expenses, and ease payment processes for merchants and customers.
Elevate your business operations and customer experience by choosing APEXX as your payment orchestration partner. Contact us now.
