Monday, April 19, 2010
Following on from our earlier post about online retail in Australia I wanted to write about another issue that bugs me about the industry here - credit card processing. For an industry to thrive it needs strong supporting industries. A key part of running an online retail business is having a good credit card processing vendor to work with and the Australian vendors are terrible.
We're using the US based PayPal to process credit card payments for Shoes of Prey and PayPal is fantastic. Here's why:
You can access your merchant account online, just like normal online banking.
2. Easy to set up
Integrating PayPal into our site was easy for Mike to do, the whole sign up process happens online and is fast and simple.
We can accept payments in multiple currencies which has boosted our conversion rates overseas.
4. Fraud Detection
They have amazing fraud detection built into their system so we haven't had a single charge back or issue with a fraudulent transaction. When I was accessing PayPal a couple of weeks ago from China using a VPN they locked me out of our account as they thought someone might be breaking into it. That's a smart thing to do, I was impressed.
There are no up front fees to use PayPal.
Last year when we were setting up Shoes of Prey I did some research into credit card processing through the Australian banks. In contrast to PayPal their offerings are a complete disaster:
For most of the banks a credit card processing account requires you to install software on your computer to access your account. NAB, who are actually our online option (more on that shortly) require you to run Windows to run their software. This is not at all convenient.
2. Easy to set up
NAB don't publish their fees online so you need to ring around to get quotes, and their application process requires you to go through a lengthy quoting and approval process that, among other things requires you to send them a detailed business plan and takes more than a month. In addition to signing up with a bank you also need to sign up with a second vendor to run a 'payment gateway' for you. I don't even understand what this is because it's explained so poorly. PayPal don't require this.
NAB is the only bank in Australia that currently allows you to accept payments in multiple currencies. With more than half our sales in foreign currencies this is a must which means our only choice in Australia is NAB. And using this option sounds like a nightmare. We have to have separate NAB accounts in each of the currencies that we want to accept, and pay a $400 set up fee per currency.
4. Fraud Detection
The banks put all the onus of fraud detection on you, the merchant. And if you get chargebacks from customers who's credit cards have been used on your website fraudulently the bank charges you extra fees and if it happens too much they might cancel your account. We don't know anything about credit card fraud detection so if we want help with this we'd need to sign up with a third credit card related vendor to help us with this.
There are so many different fees to use NAB it takes a spreadsheet to work them all out, and I don't think I ever actually got across all of them. Here's some of them:
Annual Fee: $28
Minimum Monthly Fee: $22
Fixed Transaction Fee: $0.15
Percentage Transaction Fee for domestic cards: (I vaguely remember being asked not to publish this, so I won't)
Percentage Transaction Fee for international cards: (I vaguely remember being asked not to publish this, so I won't)
Multi Currency Establishment Fee: $1200
Multi Currency Set Up Fee - charge per currency: $400
And to top it off, NAB wanted a security deposit of $10,000 in case we got a whole bunch of those fraudulent transactions that they can't help us prevent.
In contrast, PayPal only charge a percentage transaction fee. PayPal's fee is higher, and at a certain point NAB becomes cheaper for us to use, but we'd rather be investing our time and energy into increasing our sales than wading through the nightmare that is trying to accept credit card payments through an Australian bank.
And we shouldn't expect any innovation in this space. In August last year the Commonwealth Bank told me they were trialing a multi-currency service. From what I can tell on their website they still haven't launched it. Compare this situation with the US. In addition to innovators like PayPal coming from the US, new companies like Square and Verifone are launching credit card scanning devices that attach to the iPhone and iPad so small businesses can accept credit card payment using these devices. Square's device works by plugging into the audio jack on the iPhone. The scanner reads the credit card details, converts the data into an audio signal which transfers through the audio jack and is read by their iPhone app which then speaks to their servers and processes the payment online. That's incredible and would be amazing for us to use somewhere like the Bondi Markets.
The Australian financial industry is so heavily regulated that we're unlikely to ever see companies like these launch out of Australia, and it's likely to be years before these US companies are able to expand here.
So that leaves Australian online retailers behind their US competitors in what is a large, growing global industry. Online retail in Australia sucks.
Posted by Michael Fox at 2:13 PM