Digital content merchants are constantly bombarded by vendors offering to sell something. Ad networks promising the best CPI in the industry, payment service providers offering the highest payout rates, social network SDKs that keep your users engaged the longest etc.
How do you navigate your way through and make sure you use the tools that best suit your need? While we can’t solve the challenge for other services, with regards to payments we have brought out below a few helpful methods of assessment that also help you grow your revenue.
Test payment methods before you integrate
You spend a lot of time negotiating with a payment provider on the contract, finally sign it and ask your development team to invest time into integrating their solution. After launch, you find the transaction number has not increased with this new payment solution and your time has been spent on something not worth it. What if there was a way to avoid this?
The obvious solution would be to conduct a user survey to see if they would like you to add a new payment method. However, people claim to do and what they actually do are completely different things, something called a value-action gap. Fortunately, there is a more effective approach.
This approach is the minimum viable product, more specifically a painted door test. What does it mean in case of payments? It means you offer your consumers the idea that they could pay with an alternative payment method.
- You have credit card and PayPal billing added to your checkout page
- You add a third option, a button called “Pay by Mobile”
- Upon clicking the button, the user is taken to a page that says “Sorry, this payment method is not available yet, please try another payment method”
Running such a test shows you how many of users would want to initiate a payment without you even having to launch the new payment method. If you want to go more detailed, you can also look at users who clicked the new payment button and did not complete a payment with any other payment method afterwards. By using a painted door test, you can figure out which payment methods your customers would actually be using before incurring any cost on yourself.
Test payment methods after you integrate
In payments, three key numbers matter that impact how much revenue you make. Your payout / revenue share (what percentage of the transaction you get to keep), fixed fees (per transaction) and conversion rates (how many users who initiate a transaction, i.e. open up a payment window, complete the payment successfully). Looking purely at payouts, credit card payments usually offer the best payout percentage. However, in case of microtransactions, fixed fees attached to credit card payments play a significant impact. An example:
- Credit card vendor, $1.99 transaction
- Fee: 3% from end-user price plus $0.3 per transaction
- Payout: 82% or $1.63 (1.99 - 1.99 x 0.03 - 0.3)
- Carrier billing vendor, $1.99 transaction
- Fee: 80% from end-user price
- Payout: 80% or $1.59
This means that looking purely at payout rates does not give you a good understanding of how much money you are making. If we also factor in differences in conversion rates, the numbers can become even more skewed. That’s because alternative payment methods often have a different user experience. In case of carrier billing, the checkout flow is much simpler.
Despite lower payout rates, carrier billing usually outperforms credit cards in conversions, i.e. a higher percentage of users complete a payment once they have initialized it. While the numbers will differ for each merchant, let’s take a hypothetical case where 5% of users paying with credit cards convert and 6% of users convert through carrier billing. In case of 10,000 users attempting to make a payment with each payment method, the results would be:
- Credit card, 5% conversion:
- 500 users will pay $1.99 = total sum $995
- Your revenue: $815.15 (995 x 0.97 - 500 x 0.3)
- Carrier billing, 6% conversion:
- 600 users will pay $1.99 = total sum $1194
- Your revenue: $955.2 (1194 x 0.8)
Even with such a small quantity of users, the amount is significant. Once you have already launched additional payment methods, it makes sense to keep an eye on not only the total amount of money you are getting from each payment method but also evaluating them against each other in terms of performance.
Wisely adding additional new payment methods does not mean cannibalization of the existing ones but rather increasing revenues and reaching previously uncovered users.
Another useful approach to testing and evaluating payment methods is to provide users with fallback mechanisms. For example, if you know that paying users generally convert within a week with credit card payments after signing up to your service, carrier billing can be used to target those users who have not converted during the first week.
These targeted users are either not paying with credit cards because they do not have one, do not wish to use them online, or do not feel the value proposition is strong enough. In any case, these users can be considered lost from a card payments perspective. This means alternative payments can be offered to the user instead, incentivizing them to still pay but with a different value proposition. An example: when your regular service costs $20 per month, try selling users a $5 per week subscription through an alternative payment method instead.
Test service providers after you integrate
If you have the capability, we recommend integrating several service providers for the same payment method. While it might seem counterintuitive, it mitigates risk (in case one of the providers platforms stops functioning) and helps you grow revenue. How so? Service providers offer different payout rates in different markets and their products also perform differently in each country.
While one service provider might be able to offer you a white-labelled solution with a PIN flow, they might not be able to do so in all markets. Figuring out the combination of payouts, fixed fees and conversion (directly impacted by the features available) in each country and switching providers on for markets where they perform the best is the key to success.
Before you start assessing which payment methods to integrate into your service, we would recommend:
- Assessing your ability to A/B test payments (both with painted door tests as well as with live payments)
- Having in place a technical solution that allows to quickly switch on and off various payment providers and payment methods based and doing so in a targeted manner
- Having in place a measurement solution to get the full picture of how users are making payments, tracking each step and activity in the checkout flow
- Having in place an operational checklist with partners so that recurring topics related to payment processing are dealt before they become a problem: end-user support, fraud monitoring, refund handling etc.
Once a new payment service is rolled out, it is also critical to monitor the payment flow to validate if everything works or for example whether there are issues blocking payments due to integration errors. We hope you found this article useful, let us know if you have any questions in the comments below!