Published by Jessica Weisman-Pitts
Posted on August 12, 2024
5 min readLast updated: January 29, 2026
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Silverflow Robert
By Robert Kraal, CBDO and co-founder, of Silverflow
The $6.3 trillion eCommerce market is experiencing a huge amount growth, with $199,771 USD spent online in just a second. Cash still accounts for 16% of POS payments globally, but the remaining 84% (and 100% of eCommerce sales) takes place over a variety of digital networks, often proceeding through a number of intermediary companies that are invisible to the payer and payee.
While customers in a brick-and-mortar shop, for example, may not be aware about who the intermediary is between the merchant and card payment network, independent store owners may be scrutinising their payments systems more closely. If optimised, they may be able to save a few percentage points off each transaction, and potentially lead to hundreds or even thousands saved each year.
Meanwhile, some major chains may deploy teams dedicated to maximising profitability by optimising the payment process of each sale. Payment companies which support this could be viewed as an interchangeable commodity, or something different with many different services and prices. Let’s explore…
Are payments really an interchangeable commodity?
When a transaction is completed, a small percentage of the payment is taken at each stage of the process by the payment providers and card networks. However, while these costs do vary, businesses should investigate how these costs can be reduced. Industries which operate within razor thin profit margins (such as online retail which operates with a net margin of 0.64%) would be significantly affected even with only a few percentage points on each transaction. Moreover, businesses operating internationally may find it difficult if interchange fees are imposed on cross-border sales.
Having the right payments system in place to keep costs low is crucial for a business with this mindset, so should this be treated as a commodity? The definition of a commodity is something that is purely interchangeable. For example, one barrel of Brent Crude is identical to every other barrel of Brent Crude and there is no ‘premium’ barrel of Brent Crude that you would be willing to pay more for – paying more for an identical product simply has no benefit. That said, should we view payments the same way if there is an abundance of companies out there with a huge range of technology? And does the lowest cost per transaction necessarily mean it’s the best?
Are payments a force multiplier?
Unlike commodity prices, payment service costs are rarely simple. While your company doesn’t determine the price of crude oil you purchase; payments companies frequently distinguish between companies and individual payments based on the nature of the business (such as its risk type or their risk appetite), as well as the nature of the payments (such as international payments). Even if a payments company currently offers the best price for a domestic payment, your low price is going to go up if your company is subject to high levels of fraud or excessive chargebacks.
Therefore, we may have to set aside the commodity argument, and treat payments as tools dedicated to a specific job, or ‘force multipliers. An electric drill, for example, is a force multiplier that allows someone to complete the same task as a screwdriver but in a more efficient and less manual way – payments also might have the right combination of features to be a force multiplier to your company.
From here, companies also then need to work out how to make payments easier for their customers through their payments partners rather than just only focusing on the cheapest option. For example, a major differentiator for companies is to reduce decline rates – 15% of recurring credit card transactions are declined, with even as many as 30% in some industries. While transactions can be declined for plenty of legitimate reasons, the system needs to be improved to prevent false declines among that number. Why? Because the total cost of false declines is estimated to come at a cost of $443 billion every year – a stark figure. Although customers will retry rejected transactions, there’s the risk that many others will go elsewhere, then the company will lose out on making money.
We must also address fraud. Many anti-fraud tools and measures are put in place within the payments process but if these are too lax or too stringent, then you stand to lose money and harm the customer experience. Moreover, high levels of fraud can class your company as high risk and increase your fees. Having a cheaper payment partner that doesn’t solve these issues could damage your company in the long term.
Finally, data is a key component that can optimise the payments process and allow companies opportunities to evolve and prosper. However, payment companies have previously been unable to share transaction data in full because we have been relying on decades old networks that have limited bandwidth. Data is key to optimisation. and limited among of data.
A new era of payments for a new era of business
Technological innovation brings many opportunities for companies to turn their payments systems into a force multiplier. A fully modernised payment provider has so many advantages compared to a no-frills, low-cost company. If a payment provider charges higher prices, it doesn’t mean that it absolutely delivers a premium service, and not all the less expensive companies offer low quality services. Therefore, businesses must understand that not all payments companies are interchangeable commodities, since they provide radically different services, some with transformative potential for them to grow their brands. It’s time to explore the market!
PayTech refers to technology solutions that facilitate payment processing and financial transactions, enhancing efficiency and security in the payment ecosystem.
Interchange fees are charges that merchants pay to card issuers for processing card transactions, which can vary based on transaction type and risk.
A force multiplier in business refers to a factor that dramatically increases the effectiveness and efficiency of a company's operations, often through technology.
Fraud management in payments involves strategies and technologies used to detect, prevent, and respond to fraudulent activities in financial transactions.
Data optimization in financial services refers to the process of improving data quality and accessibility to enhance decision-making and operational efficiency.
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