Navigating Growth in a Payment Services Provider: Insights from Frontline Leadership
Rewritten Article:
Meet Eugenio Orozco, Co-founder and COO of Tonder 👨💼
Navigating the corridors of a payment processing business ain't for the feint-hearted. The stakes are high, margins are skinny, and competitors are always locked and loaded. That's where the real test of grit comes in. Here's what I've learned from leading a payments company in Latin America, and let me tell you, it's not just about having a vision. It's about executing at every scale.
The Art of Authorization Rates: A Marathon, Not a Sprint 🏃♂️
If you're in the business of processing payments, your authorization rate is the lifeblood that keeps the heart pumping. Every declined transaction means lost revenue for you, your merchants, and your acquiring partners.
In terms of numbers, the worldwide average authorization rate hovers around 85%. But the top-performing merchants can push this figure into the 90% range. In Latin America, cross-border transactions often see a whopping 20% decline due to fraud concerns, bank restrictions, and inconsistent issuer policies.
So, how do you turn the tides in your favor?
•Smart Routing: Dynamically sending transactions through the most reliable acquirer based on historical success rates.
•Network Tokenization: Increasing approval rates and reducing false declines.
•Retry Logic: Adapting strategies based on time, issuer response, and risk signals.
•Data-Driven Decline Analysis: Develop a dashboard to track declines and sub-declines in detail, enabling you to sip tea with your acquiring banks and gain priceless insights into the declines to implement data-driven solutions.
Fighting Fraud Without Breaking a Sweat 🤸♂️
Fraud is a whopping $400 billion problem, and payment companies are right smack in the middle of the fray. But here's the rub: being too aggressive in fraud prevention can hurt genuine customers just as much as scammers.
The most successful payment companies, however, strike aureate balance between security and approvals. That means employing machine learning-based fraud detection systems, using behavioral biometrics to separate the wheat from the chaff, and optimizing 3DS 2.0 to dish out challenges only when absolutely necessary.
You can start tracing fraud by:
•Low Risk Transactions ($0 to $500): Skipping 3DS after two or more successful transactions.
•Medium Risk Transactions ($501 to $4,999): Skipping 3DS after three or more successful transactions.
•High Risk and FTDs ($5,000+): Requiring full 3DS.
A key lesson here, my dear leaders, is ensuring seamless collaboration between your fraud team and revenue team. Far too many companies have a disconnect, with fraud teams blocking transactions and sales teams complaining, while leadership is left scratching their heads. Aligning these teams should be a non-negotiable.
Your Pricing API: The Fintech Backbone 🦾
One of the most overlooked aspects of scaling a payments company lies within pricing complexity. Processing payments ain't a one-size-fits-all game. You're pricing across multiple dimensions, such as volume-based pricing, 3DS versus non-3DS transactions, rolling reserves, refund and chargeback fees, and other merchant-specific variables.
If you don't build a robust pricing API that can manage these complexities adaptively, you could be leaving money on the table or causing operational chaos. A well-designed pricing API allows for custom pricing based on risk and volume, adjust fees dynamically without breaking existing integrations, and simulate pricing changes before rolling them out.
This isn't just a financial conundrum; it's a product and engineering challenge that needs to be tackled early. If your pricing logic is hardcoded across multiple systems, every charge could become a nightmare.
Defining Transaction Status Flow: Structuring Success 🧩
Another underestimated yet critical challenge is the transaction status flow when linking with acquirers.
What happens when there's no clear-cut definition? A merchant may view a transaction as pending even though it was successfully processed by the acquirer. Payments may get captured but not reflected properly, leading to reconciliation issues. A timeout during authorization could leave transactions in limbo, causing customer complaints and refund headaches.
It may sound simple, but different acquirers and banks utilize varying status mappings. If you don't normalize these into your system and clearly communicate them to merchants, you could be headed for operational chaos at scale.
Building a Microservices Infrastructure: Preventing Collapse at Every Scale 🦾
In payments, architecture is everything. If you're still running a monolithic system, you might be one step away from a catastrophic meltdown.
A robust payments infrastructure needs to be modular, resilient, and highly available. That means acquiring should be a standalone service, tokenization should be decoupled from transaction processing, fraud prevention should operate as an isolated system, and pricing should be managed by a flexible API.
Payment companies must build well-defined, modular services that interact via APIs. This allows for quicker iterations, better resilience, and the ability to swap underperforming providers without causing an avalanche.
Final Takeaways 🧡
Running a payment processing business is one of the toughest challenges in fintech. But if you nail it, you're not just moving money – you're shaping the future of commerce.
These are the leadership takeaways that I swear by:
•Master Your Numbers: If you can't rattle off your latest authorization rate, fraud losses, and chargeback ratios, you aren't close enough to the game.
•Make Infrastructure a Priority: Payments are more than just a product. They're an ecosystem. If your system can't scale, you'll hit a wall.
•Forge Deep Relationships: Payments are still a relationship-driven industry. The right partnerships can unlock better approval rates, better fraud tools, and better economics.
•Tackle Pricing Early: Your revenue model is just as crucial as your payment flows.
In my humble opinion, scaling a payments company is one of the hardest things you can do in fintech. But if you do it right, you won't just be moving money - you'll be shaping the future of commerce. 🌐💸
And hey, if you're a business owner or leader, Forbes Business Council might just be the growth and networking opportunity you've been searching for. Are you in? 😎🌟
Eugenio Orozco, CO-founder and COO of Tonder, understands the importance of execution in the challenging field of payment processing in Latin America. To optimize authorization rates, Tonder uses smart routing, network tokenization, retry logic, and data-driven decline analysis. However, it's crucial to find a balance in fraud prevention, as being overly aggressive can lead to unnecessary challenges for genuine customers. Tonder employs machine learning-based fraud detection systems, biometrics, and optimized 3DS 2.0 for this purpose. Lastly, Tonder places high importance on their pricing API, ensuring it can handle the complexities of pricing across multiple dimensions, and building a robust microservices infrastructure to prevent potential collapse at scale.
