A New Vision for Saving on Processing Fees
The high cost of credit card processing fees has become a growing pain point for many ecommerce merchants. With rates steadily rising over the past decade, each credit card transaction now takes a huge bite out of online sellers’ bottom lines.
But what if there was a way to circumvent the dominant card networks altogether?
That’s the tantalizing possibility explored in our recent Talk Commerce interview with Eric Shoykhet, CEO and founder of Link Money. His company aims to facilitate direct bank-to-bank payments, allowing merchants to bypass interchange fees and potentially save 60-80%.
Could this be the future of online checkout? Let’s dive into the key takeaways from Eric’s visionary perspective.
The “Tax” Every Merchant Pays
Interchange fees – the bulk of what makes up credit card processing costs – essentially function as a “tax” on the entire retail economy, Eric argues. And it’s one that has crept steadily upward over time.
Back in the day, these fees amounted to maybe 2% of each transaction. But now, after years of increases by the card networks, interchange can cost ecommerce merchants anywhere from 2.5-3.5% per sale.
For thin-margin businesses already dealing with supply chain woes and inflationary pressures, that growing cut is painfully substantial.
Why Does the U.S. Lag Behind?
In many other countries, low-cost real-time bank transfers have become the norm. Payment platforms like UPI in India and PIX in Brazil enable cash-like speed without the fees.
So why is the U.S. still stuck in the credit card stone age?
Eric explains that it comes down to our fragmented banking system. With thousands of banks and acquirers, upgrades happen at a glacial pace compared to more consolidated markets abroad. We also lack the centralized authority to mandate instant adoption of new payment rails.
But while the ideal infrastructure may not exist here yet, Eric argues that consumer bank data access has improved enough for companies like Link Money to make direct bank payments work smoothly.
When Will Merchants Adopt?
How soon could we see widespread adoption of bank-to-bank payments for ecommerce?
Eric predicts that major merchants will start rolling out solutions like Link Money as soon as 2024. And he expects bank payments to steadily gain market share over the next 5-10 years, reaching up to 10% of total volume.
Adoption will depend heavily on repeating customer relationships where the merchant can encourage switching payment methods. Subscription services and repeat-purchase retailers are prime early candidates.
Should Ecommerce Owners Jump In?
For online sellers weighed down by processing fees, bank payments present an intriguing way to lighten the load at checkout. But interchange is still deeply entrenched, so this transition will likely span years rather than months.
Jumping in early comes with advantages – price savings, a novel sales hook, potential retention benefits – but also risks if low card fees remain customers’ status quo preference.
Carefully evaluate your business model, purchase patterns and customer loyalty. If you decide the time is right to bypass cards, reach out to emerging providers like Link Money to implement modern checkout. The future may be direct, but flexible payment options are always essential.
With costs ballooning and consumers seeking smoother payments, the old interchange infrastructure looks increasingly outdated. Bank-to-bank platforms offer a tantalizing glimpse into a fee-light ecommerce future.