I know 1.5% isn’t exorbitant compared to what payment processors across the world charge. But that 1.5% is preventing many businesses from adopting online payment for goods and services.
A lot of our clients have been requesting this but they are unwilling to pay that much. From our survey our clients and their customers would be willing to pay about N500 per transaction, as that is about the amount they spend on transportation going to a bank. Our clients typically receive payments of over N100k per transaction, meaning by Paystack rates they have to pay N1600.
Why do payment gateways charge this much? And what are the chances of these rates coming down anytime soon?
PS: I used Paystack as they’re my favourite. But pretty much all payment gateways charge about the same rates.
Well, I don’t know if 1.5% capped at N2,500 naira, is “much”. Even if you wanted to integrate directly using your bank’s own payment API, they would still charge you per transaction (the last time I checked).
It’s not about percentages. Some “offline businesses” are open to adopting web payments but not at such rates. I am more concerned about the possibility for those rates to drop soon.
Yes it will cost them 500 naira for transportation to the bank but what about the ease provided which enables them focus on other areas of their business?
Like you said around the world 1.5% is minute. So why must it be different here?
What actually stopped people from adopting online payment for several years was the exorbitant cost of integration. Back then it was up to 1,000 USD.
In all honesty We have these new payment companies to thank…
BTW, on the issue of 1.5% fee, you can talk to your provider if they are willing to bend on price. I know a number of Voguepay merchants have raised similar concerns too. While 0% fee is not realistic you can open up discussion with the support team (info@voguepay.com)
In my opinion (which is probably worth nothing, as I’ve never been a merchant), 1.5% is relatively low. Plus it has a low cap. As much as the merchants want to hold on to their money, don’t you think Paystack wants to hold on to theirs?
I know it is low. I am saying the reality on ground is that a lot of businesses that are willing to adopt web payments are holding back because they’re unwilling to pay that much. Especially for businesses that receive amounts above 100k per transaction.
If the rates could be capped at a lower amount than N2500 I know a lot of businesses will move payments online.
As you alluded to, the cut for payment gateways worldwide ranges from 2.4% to 5%. This is what (for instance) Paypal charges online merchants, or Visa charges restaurants.
So I’m surprised to see Paystack’s fee is a low 1.5% (which would suggest to me somebody is subsidizing Nigerian merchants, and for how long?)
That said, I feel 1.5% is very well justified. If it keeps some businesses from adopting web payments, then this is a good thing: better to be profitable with a smaller subset of users who pay your premium, than eventually die trying to scale to handle a lot of less-profitable users.
Longer-term, businesses will find that 1.5% is far less than the friction of doing business with cash: transport to bank, opportunity costs while spending time in queues, issues of reliability of staff delegated to handle cash, risk to personal safety while being trailed to the bank by robbers.
@unemployed there are a lot of parties involved in pushing transactions.
Card issuing network also called “Card Association” (Mastercard/Visa/Verve/Discover)
The acquiring bank. (Passes the merchant’s transactions along to the applicable issuing banks to receive payment.)
The issuing bank (Issues credit cards to consumers on behalf of the card networks (Visa, MasterCard).
The switch (Technology owners of the network which receives transaction request and obtains authorization from the host bank for debits.
For every payment; you have to pay all these parties for their services. They all take from the 1.5%.
Actually some of them take a fixed amount such that for transactions as low as NGN50, the 1.5% “MAY NOT” be sufficient to pay them and the Merchant service provider(Eg paystack) has to run them at a loss hoping they will balance out with 1.5% on higher transaction volumes.
Have a look at the pictures below for fees which Mastercard and Visa have to receive depending on the transaction. This is for our America Payment Infrastructure and it will help you understand what goes on with those fees.
I am not very sure but I think why it is even so low is because the banks in Nigeria are waving those fees. So mostly the switch and card associations are getting fees. “I am not absolutely sure though”.
I don’t like arguments that say “because its expensive outside the country then it must be expensive in Nigeria too”.
This is because the cost of doing business outside Naija is completely different from what it cost to do business in Naija.
For example, because a burger at McDonald cost $7 in the US does not mean it must cost N2600 in Nigera.
The expenses business incur such as employee salaries, corporate tax, office rent, transportation cost, etc are very different.
Granted somethings are way more expensive in Naija… for example… Power or the Cost of funds etc…However, the point I am making is that, while one must benchmark costs, every business most also be priced in accordance with the requirements of the local market.
Refusing to try out something because it is ‘expensive’ is a good excuse not to get it done.
You could advise your respondents to pick a payment platform. Sign up.
Then show the potentials in their daily, weekly or monthly transactions. I
f the turnover is too sweet for such payment platform to resist, trust they will bend their charges.
I don’t want to mention names, but some thick business people in this country pay lower bank charges than small businesses who should get that as incentive in the first place.
Why? Huge turnover can get you huge consideration.
Maybe you have come upon an opportunity. Why don’t you look into starting a low-cost payment platform built on the ethos of staying lean and charging less. If your permutation is correct, you might just win Big!
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