2 days Ago By Lauren Towner
SaaS data analysis newcomer Torus says it is intent on shining a much-needed light on card fees for merchants and acquirers It’s fair to say that, for years, merchants have felt badly done by when it comes to transaction fees for the goods and services they sell. The rise in cashless transactions – further fuelled by the COVID pandemic when consumers became used to paying for everything from their daily coffee to parking, tube fairs and chewing gum by card or phone – only sharpened their pain, although this explosion in contactless-over-cash did also benefit them in saved admin. It also helped bust open the monopoly the larger issuers had enjoyed over merchant payments infrastructure, and the charges they pay for using it, by increasing competition – although the majority still protest they are paying way too much while there’s way too little transparency of those charges.
Here, software-as-a-service provider Torus believes it can help. Its simple belief is that by better explaining, understanding and forecasting transactional costs at a day-to-day level, acquirers, payment facilitators and merchants can optimise profits, improve competitiveness and benefit from greater trust throughout the value chain. Kirill Lisitsyn is co-founder and CEO of the three-year-old platform based in Vilnius, which currently serves multiple customers, ‘mostly in Europe and the UK’ but with ‘footsteps in Central Asia and the Far East, like Japan’.
“Merchants tell us they face two main problems,” Lisitsyn explains. “Firstly, the costs themselves. Then, there is lack of transparency, in terms of the drivers of those costs.
Cards still dominate cashless payments. Even wallets like Apple Pay are fuelled by cards and this means the majority of cashless transactions trigger interchange and scheme fees. Merchants are paying their acquirers, plus a margin based on what those acquirers pay towards their own transactional fees.
Opaqueness around this means merchants don’t fully understand what they’re paying for, and the explanations acquirers offer them don’t really help.” This breakdown in communication can damage merchant/acquirer trust. Meanwhile, acquirers are facing their own pressures.
“The card payment industry is still booming, growing by double-digits year-on-year, which is good news for the payment players and also means competition is increasing. The barriers to get into the space are low, especially for e-commerce transactions,” Lisitsyn says. “However, this also means acquirers are locked in a situation where their margins are diminishing.
They need to compete but they still have to be profitable.” Like merchants, they often lack adequate insight into their own cost cycles, says Lisitsyn. “They need absolute control over the tiniest elements of their profit and loss, revenues and costs and, right now, that’s not always the case.
” He believes the solution is relatively simple. “Providers are sitting on large data streams from payments schemes that they are not analysing to their full value,” Lisitsyn adds. “Our research, and feedback from customers, suggest if acquirers and others start analysing this data better and deeper, they can extract a lot of value by understanding their true transactional costs and pricing their merchant services more accurately.
“In some cases, this might reveal certain transactions are super-expensive and they need to charge more to avoid transactional losses; in others, they might be cheaper and more competitive, but they can offer more tailored pricing overall for their merchants. With some of the larger grey areas, the acquirers don’t have a handle on the scheme fees, so they are not accurately passed over to merchants. That is creating issues and influencing trust because merchants sometimes think acquirers are overcharging them, and acquirers are not able to prove that, actually, these are the same costs they’re paying to the schemes.
” There has been an attempt by the industry to remove some of the opacity by using the Interchange ++ pricing system, which provides a detailed breakdown of the costs incurred by the merchant from the acquirer, the card scheme and interchange fees. But it’s really only suitable for larger enterprises and even then it often results in more confusion, not less, says Lisitsyn. “Merchants receive a figure but not all acquirers are able to explain what that number consists of or how they arrived at it.
So, it’s no clearer. And for them, it creates additional risks because if they’re paying a blended fixed rate at least they can predict the costs, whereas if it’s Interchange++ they can’t.” Lisitsyn believes that by unlocking the wealth of transactional data that merchants and acquirers are already sitting on, Torus can keep both better informed and more efficient.
“Acquirers already have all the data they need, they just need to spend a bit more time and resources on extracting the value from it to create their competitive value proposition and adapt their back-office operations in a way that enables them to be super-clear on the transactional costs and revenues, down to individual transaction level,” he says. “They need to understand the margin for each transaction, and, if it’s loss-making, what they need to do about that, then respond to it dynamically. That way, they can manage their P&L accurately, on a weekly basis.
At the moment, changes are only happening annually – it’s much more efficient to fix things in the moment. “Cards will remain a material part of the payment space and that’s why it’s vital merchants manage those costs at their end” “Imagine that you, as an acquirer, are suddenly able to allocate the scheme fees costs down to a single transaction level so now you (a) see the real transactional costs and profitability of your individual merchants, (b) are able to provide maximum transparency to your merchants, and (c) know exactly which merchants should be repriced, and how they should be repriced, to maintain target profitability levels.” The opportunity is greatest for medium sized industry players.
“While not all of them are working perfectly, the largest providers invest time and resource into building their own, in-house solutions,” says Lisitsyn. “But the mid-marketplayers we’re targeting typically don’t have enough resources to do that. Where they’d have to spend millions and a couple of years’ development to fix just one issue themselves, they can have the same results or even better within a few weeks by partnering with us.
We want to enable them to get to the same level of insights and analysis as the largest players in the market.” So, how are payments developing and what does that mean for Torus? In Europe, local card schemes are on a steady decline with a European card scheme a distant dream, while the dominance of Visa and Mastercard increases in the region. “Post-COVID, there is more and more international travel and merchants need to be connected with international schemes and cannot just be localised,” says Lisitsyn.
“And while there is a lot of trendy stuff happening with alternative payment methods (APMs), we don’t believe the rumours that cards will die within the next few years. “APMs are growing faster than cards in some markets, but they’re doing that by eating their share of the cash pie faster than the card schemes are, not by taking the cards’ share of it. We think, for the next five-to seven years, cards will remain a material part of the payment space, especially in e-comm, and that’s why it’s vital that merchants manage those costs at their end.
” Torus’s SaaS solution, though largely plug-and-play, can be tailored to specific client needs in different jurisdictions, and its data storage solutions are Cloud-agnostic, processing only anonymised information for optimised security. “So far we’ve been focussed mostly on users directly connected to Visa and Mastercard and getting their regional data formats from the schemes,” explains Lisitsyn. “But we are being driven down the value chain by the market.
In the past six months, we’ve had a lot of requests from payment facilitators and merchants, asking us to provide similar analysis, and have recently launched a solution which could be specifically used by the acquirer sales force, by payment facilitators, and merchants themselves, to benchmark their transactional costs, including scheme and interchange fees, against where they should be, without data sharing. “We’re expanding into the merchant space, with more to come on that within the next six-to-nine months. “We remain focussed on the scheme fees and interchange space and we are naturally scalable geographically, because the data formats our customers get from the various schemes are the same globally.
” This article was published in The Fintech Magazine Issue 33, Page 14-15.
