Global Online Payments in a Nutshell
Online payments business is one of the most challenging areas in technology field. It is because online payment business is a global business for customers, but it is mostly a local business for companies. Let’s have a look into the details how online payment is working.
Background about how online payment is working
There are variety of online payment methods all around the world, but i want to focus on credit cards as a payment method since it has the wider usage.
Today, pretty much anyone can go to a bank and can get a credit card. The expectation of the customer is to use it globally anywhere in the world. It means a single bank in somewhere in the word should able to accept payments from another place which could be thousands of kilometres away. That where the problem starts, because the country where the credit card is issued has its own rules which are regulations. Each country has its own regulations.
Of course one regulation in a country does not impact other countries, but it brings limitations to the online payment processors where the users are not mostly aware of it. For example, credit card holders can not make payment for their local currency in another country or there will be a big currency rate conversation or, in some cases, it does not work in another country.
Lets’ look at this example where someone has a credit card issued by a bank in Sydney and he wants to use credit cards in Turkey to purchase Turkish delight, a Matryoshka from Moscow, some tea from London.
Challenge 1: Currency
The first problem is the currency. The local currency is Australian Dollar in the above example, but credit card holder spends with Turkish Liras, British Pound and Russian Ruble. Depending on the how many currency conversations happens customers may pay multiple currency conversation fee.
Challenge 2: Local Regulations
Each country has their own rules for online payments to mostly protect their customers, collect correct taxes and audit the payments if required.
- Authentication of payment request. (MFA)
- Generation invoices and reporting the purchase to the governments.
- Physically storing the payment data inside the country.
Challenge 3: Card metadata resolution
Credit cards have metadata attached to them. They are important details of the card which is not provided by customers when they use cards online. They are mostly extracted from the credit card number.
- Credit card issuer brand.
- Credit card country.
- Credit card bank name.
Above data is extracted from Bank Identification Number (BIN) however, in some cases there is no 1 to 1 map from credit card number to a bin value. A bin value may be used in multiple countries by variety of banks or brands. Therefore, there is a credit card which is owned by a single user where user knows where it is issued, which bank issued the card and what is the brand of it. However, extracting this data from a credit card number is not always possible and it is known by the issuer bank or brand not the online business which tries to charge the card.
If you are curious why you can not use your card in some specific web sites or countries most likely this is the reason where your card metadata can not be resolved correctly and payment processor does not know what to do.
Online payment business is globally local
For those reasons it is crucial to address those challenges for any global online business. Those make the online payment a local business instead of global even if the business operates globally.
Customers should experience a unique and consistent behaviour from the business, but in the background payments mostly done in the local level in a particular country in order to find the correct metadata, to comply with local regulations and to have better customer experience. That is why i call online payments globally local.
Simple Solution to the challenges
As I identify the online payments as globally local business. The local inputs (regulations, payment location, local currency) are crucial in payment space. I call it payment context. It holds the local variables to provide better experience to the customers.