Payment Gateways disrupting Online and Mobile payments

Update: We’ve come up with an interactive and comprehensive tool to compare and evaluate the payment gateway providers, specific to your country.

Ideas are only worth so much and execution is all that matters.

The past decade was dominated in the payment space worldwide by one player – PayPal. However, PayPal’s horror stories are now widely known, for example, “PayPal’s API Documentation“. But PayPal made payments simpler across 200+ countries, which no one else in the industry has achieved. That scale is not possible without stringent fraud checks they have in place, which could have killed the company.

You can read some interesting insights on the amount of fraud PayPal had to deal with in their early days in the book “Founders at work”. Here is a quote from their founder Max Levchin: ”2000 was basically the year of fraud, where we were just losing more and more money every month. At one point we were losing over $10 million per month in fraud. It was crazy.”

Online & Mobile payments

Online payments have come a long way and today, innovation continues as some companies expound on the mobile payments arena. While PayPal still dominates web online payments, a number of companies have started to challenge its authority.

In recent times, there are a number of start-ups that are innovating in the payments space and challenging existing players, who seem to have stagnated in innovation over the years.

According to a report released by ABI Research, over $119 billion will have been spent by customers on buying goods or services through mobile phones. This number represents approximately 8 percent of the total eCommerce market. Moreover, the smart device boom is expected to continue in 2013. By 2016, physical goods purchased through smartphones (excluding digital downloads) are expected to reach $62.2 billion.

Image source: Statista.com

It has been more than a decade since any new payment start-up really made a mark and suddenly there are many start-ups that are challenging the status quo.

What makes this space very interesting is that there are a number of start-ups starting their own operations globally that are supposedly clones of services that are validated in mature markets and are capturing the opportunity everywhere.

To give you a background, let us look at some of the services that are making a dent in this space in the US and what has helped them gain traction.

Braintree Payments – Online payments

They championed credit card portability and pushed the case for more transparency in pricing and to not hold credit card data hostage.

The company powers mobile and web technology payments for a number of consumer-facing companies including Uber, Angry Birds, Living Social, Airbnb, Fab.com, OpenTable.com and others.

Braintree’s “transparent redirect” allowed businesses to stay PCI compliant while having the flexibility of using API to pass credit card information.

Braintree has already expanded out of the US and recently, launched its services in Australia and before that in Europe.

More recently they changed their pricing model and revamped their signup process to compete with Stripe. They have announced their support for start-ups to process the first $50K USD of transactions for free for 1,000 start-ups in USA.

Talk about competition only making the entire marketplace better for customers.

Stripe – Online payments

Developers love Stripe and its simple API is one of the reasons that the service has a large following.

The company charges 2.9% + 30 cents per transaction to match PayPal rates. Whether your customers are using local or international credit cards, the transaction price is fixed.

Three areas where Stripe differentiated from everyone else:

• Easy signup process with automated checks to on-board businesses.
• Fantastic API and documentation that captured the imagination of developers.
• Support for subscriptions that addressed the needs of the rising developer / entrepreneur group that needs this in the rising subscription economy.

You don’t need to sign up for a merchant account to accept payments because Stripe handles everything including direct payouts to your bank, subscriptions, and saving your credit cards. If you detest the notion of your visitors leaving your website to make payments, you can create your own payment forms to make visitors stay and still not have to worry about PCI requirements.

Stripe has just recently entered the Canadian market and is expected to expand to other countries in future.

Square – Card present transactions

One of the biggest barriers that small merchants face is how to accept credit cards payments physically without high setup fee, devices etc.,. Recognizing this challenge, Jack Dorsey went on to found Square.

Square is disrupting the mobile payment industry by allowing just about anyone to be able to accept credit card payments without incurring the prohibitive conventional set up fees. Customers can pay for goods or services through their smartphone, thanks to the Pay With Square app. The company has experienced significant growth over the past year, with employees reaching 400 from 150.

Today, over 75,000 stores in the US use Square’s white plastic card reader that stores to swipe cards. The company ships the mobile credit swipe reader for free to a customer on sign-up. Square is disrupting the POS market by removing the barriers to accepting credit card payments.

The company is rapidly expanding and creating partnerships with major retailers and communications giants in a bid to expand its market and possibly distort the credit card market grip of Visa and MasterCard. Recently, the company sealed a blockbuster deal with Starbucks and AT&T.

PayPal’s mobile solution is one of the leaders in the pack, with transactions worth over 10 million being processed through it every day.

Dwolla – Bank transfers

As new platforms and applications enter the marketplace to serve every niche, businesses are finding value in tapping the ubiquitous ACH network for bank-to-bank transfers.

Dwolla offers an Access ACH API and infrastructure that allows developers and businesses to build bank transfers directly into their branded applications, automate backend operations, and manage customers.

With its developer-friendly API and open-source documentation, Dwolla’s differentiator is that it’s making an old system that’s been notoriously hard to use, simple. The Access API allows you to skip dealing with credit cards (and their confusing, ever increasing percentage-based transaction fees), and instead offers you a means of sending a receiving payments programmatically, at a flat monthly rate.

While we wouldn’t recommend Dwolla as an alternative means of payment on your Shopify Store, we would recommend it for platforms and applications transacting large numbers of transactions. GOAT, for example, a marketplace for buying and selling high-end sneakers uses Dwolla’s Access API to payout directly to its sellers bank accounts.

The Future of Web and Mobile Payments

The battle for dominance and disruption of the credit card industry is far from being won. There are many payment gateways both in the United States and overseas that are trying in one way or the other to address the challenges of online payments for individuals and small businesses.

Most of the companies are moving towards mobile payment solutions, which have also caught the attention of the old players like Visa (V.me) and MasterCard (PayPass). The many players in the mobile payments industry may be as a result of the many sub categories present when it comes to payments. Some of the companies that are making a mark in the mobile payment industry include mPowa, iZettle, Intuit GoPayment, PayPal Here and VeriFone.

There are several players coming up and trying to get a head start in their respective markets, instead of waiting for the US start-ups to expand globally. These start-ups have a great chance of applying the learning from US market and implement it better in their respective markets in a much more localized and better way.

• Pin in Australia
• Paymill in Europe (backed by Rocket Internet – Samwer brothers)
• GoCardless in UK
• Many Square clones in different countries.

Did we miss any other important disruption happening in the payment industry.  If so, please share with us in the comments section.