Andy McHale from Spreedly offered an example-rich take on the specific regulatory and cultural aspects merchants should consider when orchestrating payments in specific markets.
My mind always goes to the starting point of why our alternate and local payment methods have become more prevalent and more important. A lot of it has to do with the diversity in different regions and how customers want to shop depending on where they live. It is a paradigm that created the need for a lot of technology to emerge in different markets to facilitate solutions to each specific problem depending on geography.
Because of Spreedly's connections in different regions, we see an overview of what consumer preferences are and how they prefer to pay. Moreover, we have direct insights into what works well for merchants. We offer the ability to orchestrate across these different payment types, providing merchants with the ability to offer the right mix of local payment methods that meets the needs of their customer targets. Through a single orchestration layer they gain access to payment methods via their preferred gateway, an aggregator, or through other direct integrations that Spreedly can provide to them.
Local payment methods have different flavors depending on the payment method. Some of them will provide a different module or a different page for you to pop into – an offsite transaction such as the ones provided by iDEAL in The Netherlands or PayPal, globally. Other methods work with a different portal you have to log into. Tracking and maintaining each integration for your payment method can prove to be a lot of onerous work. This is where an orchestration platform helps.
It is similar to how we maintain gateways behind a single connection for merchants. We can maintain local payment method integrations behind that same single endpoint on the orchestration platform. Ultimately, where there is an update to a digital wallet or an Open Banking platform, we can manage, maintain, and keep it up to date for our merchants.
Depending on how many payment methods a merchant can offer, they can find themselves handling a lot of distinct integrations. Managing those pieces can be laborious on top of all the maintenance. A payments orchestration platform provides as many LPMs as possible to a merchant through a single API, so they don't have to maintain 15, 20, or 25 integrations depending on their region and what they want to offer.
As an orchestration platform in general, we don't ever want to just force something onto a customer. We need to understand their business and what their needs are – particularly when we talk about local payment methods.
However, it's not the right thing for a checkout experience in most markets to have 10 different payment methods displayed on your checkout page. It's confusing and cluttered, especially in a mobile experience. The customer may be scrolling up and down to try to find the payment method they want. We provide guidance on where we're seeing adoption, where we're seeing volume, and what the popular methods are that consumers are using in a given region, in order to help merchants design a sleek, fast, and low-friction checkout experience.
There are also some other considerations regarding funding. Different local payment methods settle their funds in different ways. There are several dispute rights that go along with different payment methods, depending on region and the payment method. Moreover, other back-office processes like reconciliation or data reporting come into play. An orchestration platform can help as it's already aggregating the transactions, and all the financial data, and a merchant can get all this info in one place.
Just in US and Canada, for instance, alternate and local payment methods tend to be very similar across the types. More specifically, let's take the case of digital wallets. There is Apple Pay, PayPal, Google Pay, but there are also Buy Now, Pay Later payment methods with high adoption In the US. There isn't a high volume of banking-based payments in ecommerce, even though there's certainly a huge economy around ACH and real-time payments. There still isn't a high degree of diversity across the US and Canada.
When we turn our focus towards Europe and the UK – there's some consolidation through the European Economic Area, with Open Banking standards through PSD2 that can be leveraged across borders. Nevertheless, there is way more diversity in each country. There is iDEAL in the Netherlands, Giropay in Germany, and many other payment systems that are important regionally. In the same space, there are also payment methods that work cross-border - ecommerce purchases made easily from Europe to Latin America, for instance.
Apart from this, there is a lot of regional diversity because of culture, but also due to regulation. Regulations between Brazil, Argentina, and Columbia are different in the way that those banking schemes operate and allow transactions to be easily settled across borders. This is fertile ground for the emergence of technology such as digital wallets inside countries that then have to slowly grow across different markets. Nequi is a mobile wallet quite prevalent in Columbia that is trying to break out and get into new geographies.
We need to also mention the Open Banking standards in Brazil. Pix is the payment method sitting on those government-backed standards. It took off like a rocket and has an outstandingly high adoption and market share in Brazil. Considering these examples, when we talk about providing services to customers, we do try to understand what are the markets they operate in, where's their customer base, and if they have specific needs: is it perhaps a local debit card versus a local payment method?, can we support those on the gateways and integrations we have in a given region?
An important distinction that I'd want to make as we move into 2023 is that you will hear Spreedly refer to local payment methods instead of alternate payment methods. This is because, in some cases, they're not alternative. One good example is iDEAL. It is a well-established payment method, not an alternative one, and it also is preferential to its specific region.
When it comes to Buy Now, Pay Later, I think the space will benefit from more consolidation. We've seen a lot of economic uncertainty in the last year, and I think going into 2023, there will be more focus on these providers, a clearer understanding of what these credit products look like, along with the companies who offer these services.
Globally, governments cannot move as fast as fintechs do because of the very nature of their structure. They're always going to be playing a bit of catch-up as some of these technologies emerge. Typically, a lot of regulation comes down to consumer protection when it comes to ecommerce payments. It will be an interesting space for us to watch as technology advances, as we rethink how people will pay for things in the future, and how regulation will catch up.
Andy McHale is senior director, product and market strategy at Spreedly. Andy has been in payments and risk for over 20 years. Prior to Spreedly, Andy was with RetailMeNot. He was also a member of the teams at PayPal and eBay. where he contributed to various aspects of consumer and merchant payment solutions and fraud prevention.
Every day we send out a free e-mail with the most important headlines of the last 24 hours.
Subscribe now