The T&T Online Payments Scene
I’m writing this up in response to a common frustration we see thrown around in T&T in the tech/small business community: “What’s the deal with online payments?”
It’s a fair question given how seemingly tough it is for the average small business or individual to be able to accept a payment online simply. This is within the context of most of these persons’ being exposed to services like PayPal which introduce you to the sort of functionality you’re looking for, but which doesn’t quite work that well for our local needs.
I’m writing this to lay out where we’ve gotten to to-date with our own online payments scene in T&T, and maybe what we’d need to see to get us moving forward to a fully functional online payments ecosystem.
While we do see some solutions that work for much larger players on the local scene, we have yet to see something acceptable for individuals, small businesses and startups. At the end of the day, what we’re looking at is a question of infrastructure and payment rails, and a great place to start is the most commonly used rails for processing payments online, the Visa/Mastercard networks.
The Visa/Mastercard Rails
Visa/Mastercard run extensive proprietary networks around the world and facilitate the passing of payments messages at scale between customers and merchants. To access their network persons must be able to connect to various Payment Gateways. Think of these Payment Gateways as train stations that get you onto the Visa/Mastercard rails (network). Following from this, the important questions to answer for understanding how online payments work are:
- How do I get through the Visa/Mastercard train station (Payment Gateway)?
- What will it cost me?
The Payment Gateway Integration Process
This process is a relatively arduous one. It starts with you setting up a special kind of bank account called a merchant account with one of the local banks. The bank must be one that has a relationship with the Payment Gateway, where in the case of T&T it is most often the First Atlantic Commerce gateway. The merchant account process involves a series of due diligence steps with the bank to ensure that your business is fit risk-wise. It also includes certain setup fees for the process. In a nutshell, the requirements are as follows:
Step 1. Getting a merchant account & payment gateway account thru local bank
- A favourable risk profile: history/reputation i.e. an established business
Business must be established and be able to produce financial statements to satisfy the bank that they are low risk and in a good financial position.
- Initial setup cost
Fees to setup implementation can run into thousands of dollars
Is a multi-month process
Step 2. Connecting your website or app
- Initial setup cost to develop custom solutions
This happens after Step 1 is completed. It can mean hiring a software developer who has to work through the significant technical documentation provided by FAC to integrate the gateway into the your specific setup.
Step 3. Running costs: Fixed monthly costs, add’l per transaction costs
- High volume of transactions to justify the fixed monthly cost
For e.g. a monthly fee of $3,000 would require monthly sales-via-c/c of $100,000 to satisfy a reasonable per transaction cost of 3%.
- Maintenance of technical implementation if necessary
Hosting code, hiring developers to push out updates etc.
An appropriate analogy for this is, you live on a small island and you need to get to the mainland to conduct business. Up to this point, your only option is to first get your own boating license, build a boat, and then run that boat yourself (all costs included) to get to the mainland every day.
We have seen some recent improvements on this process in T&T, mostly along the same lines across the various solutions available. These services help solve for the second requirement above, Setup of Technical Implementation, in a few different ways:
Have built Wordpress and Magento plugins to help integrate with those specific platforms. These two platforms cover a significant portion of how persons would usually set up an ecommerce store and is a viable route for a number of applications.
Has a custom app that integrates with your website. It’s still unclear how this integration will happen, but it may also be through plugins with popular shopping carts and platforms.
Edit: I wrote an update to re-categorise Wipay based on new info received after publishing this piece. Read here…
Is proposing to build an api that would significantly simplify the technical documentation provided by the FAC payment gateway. The effect of this would be a significant reduction in the costs to build the required custom solutions, and maybe even a proliferation of off-the-shelf solutions built by developers as products.
Progress on the development of this api is unclear at this time though.
All of these solutions propose to take care of Step 2 for you. They take the technical documentation and build it into neat packages that you can use in a very limited selection of places. The problem though is that you are still stuck with all the costs and hindrances from Step 1 and you must still operate at a high enough level to sustain the costs under Step 3. These are both non-starters for many small businesses and startups. We ourselves would likely have never gotten off the ground with our own little ‘startup experiment’ had we needed to rely on these local solutions alone. For those in the space, this barrier-to-entry would most certainly have implications for any local innovation ecosystem being developed.
To get back to the you-live-on-a-small-island analogy, you still have to go out and get your boating license, but once you get that you can now buy a pre-built boat from one of these providers, that comes with a sailor. The only catch is, these boats only sail to one or two specific ports on the mainland and there are at least 20 ports that folks would like to get to. You still cover all the costs of running the boat.
What we actually need to see is something akin to PayPal, a service that most folks are familiar with. PayPal operates under an ‘aggregator model’ where they place themselves between the customer and the banks and greatly simplify the process by doing a few things:
- Removing Step 1
Significantly reducing the time-to-setup and bringing initial costs-to-setup to zero. They do this by removing the required due diligence and taking on the risk profiles of their customers themselves.
- Removing Step 2
Providing all the technical solutions and implementations out-of-the-box
- Simplifying Step 3
Aggregating all the fixed costs and offering services to customers at a manageable variable cost per transaction
In our you-live-on-a-small-island analogy, something PayPal-like (an aggregator model) would be a ferry service with regular sailings to the mainland.
Taking it one step further, we also see services like Stripe and Braintree that operate under an aggregator model, but that come with powerful api’s and fraud mitigation mechanisms that are specifically designed for developers. They offer a deeper layer of development and integration and their ease of use has resulted in flourishing ecosystems of integrations and solutions.
In our you-live-on-a-small-island analogy, the Stripes/Braintrees of the world are toll bridges that take you pretty much everywhere, with the option to build your own toll bride for those rare instances where the bridges don’t yet exist.
Likelihood of a local aggregator
To date we have not seen anyone tackle this particular business model, and probably for very good reason. The model requires the aggregator to be able to extremely efficiently deal with vetting its platform customers and manage risk. It’s a model that works better at scale, and that may be even trickier to implement given our very small relative potential market base for the model. Given this unlikelihood, what we may end up seeing are solutions that rely on alternative payment rails to eventually get us to where we need to be as a local ecosystem.
Edit: An update was written on this based on new info received after the publishing of this piece. It appears that we may have a local aggregator-type service developing on our hands. Read more here…
The Visa/Mastercard networks are merely one set of rails for accessing online payments. In addition to the challenges described before, the trick with these rails too is that consumer credit card usage in T&T is usually quoted as a relatively low percentage of our entire population. While effective credit card processing may open up our businesses to foreign buyers, the problem of providing services to locals may still loom large and that is where the usage of alternative payment rails may have to come into play.
In other countries, we have seen solutions that make use alternative rails such as:
- ACH based systems
Think bank-to-bank transfers. In T&T today we see these rails used mostly for functions like processing payrolls or doing bill payments. They have not yet gotten to the point of being used for more general transactions and this could well be one route to solving the online payments problem. An example of an implementation of this from the US is from a company called Dwolla.
- Mobile money systems
These sorts of systems leverage the existing telecoms networks to pass payment messages along and facilitate settlements. It is also a method that we may well see being explored in the near future locally.
- Hybrid systems
These systems leverage various aspects of the bank-to-bank system and mobile delivery to make online payments more widely accessible. The folks at Wipay for example may have something like this based on demos shown to date. While optimistic, the actual implementation however remains to be seen.
‘Blue Ocean’ Solutions
Something coming down the pipelines that we may see in the near-to-medium-term future are solutions based on blockchain technologies and cryptocurrencies. This category of solutions represents a fundamental rewrite of the entire payments infrastructure stack, the implications of which would require an entire blogpost or series of blogposts to properly explore. For a sample of this coming wave, feel free to check out the following piece I wrote about ‘blockchain assets’.
Disclaimer: I am by no means a payments expert or any sort of direct practitioner in the field. The info represented here is based on my own personal explorations drawn from anecdotal evidence and linked references where available. I hope more that these can contribute to the ongoing conversation and I very much welcome inputs/corrections/improvements where appropriate.
Edit: A follow-up to this post was written based on new info received about Wipay and their strategy for implementing online payments.