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Insights and Expertise

What banks and Collecting payments from customers is not cheap, and
card processing, for instance, can significantly eat into the
payment providers profit.

Let’s see an easy example where a payment provider
expect in a startup's charges 3 percent. Not too shabby, right? However, it is
charged on the gross revenue, not on profit. So, if the
local GST or VAT is for example 20 percent, and the profit
business plan margin is 20 percent, this means we are looking at an 18
percent fee on the profit.

Realistically, this means that from every dollar the
business profits from its activities, 18 cents go directly to
the pocket of the bank or payment provider. This cost is
sometimes higher than payroll or technological fees, not to
mention other payments and banking-related provisions
such as foreign exchange fees, rolling reserves, cashflow
gaps from settlement delays, and the cost of chargebacks
or disputes.

Presenting a solid working model that shows a clear
By Viktoria Soltesz understanding of the real costs of banking and payments,
PSP Angels risk management, liquidity and revenue flows will
increase the likelihood that banks and payment providers
hen startups prepare their business plans, will want to work with the startup.
they usually want to impress investors or Pricing
get new partners. Little do they know, the
W business plan is one of the most powerful Surprisingly, banks and payment providers pay close
tools that gets a startup accepted by banks and payment attention to the pricing model, as both excessively high
providers. and unusually low prices can raise concerns for different
reasons.
The perfect business plan will secure safer, cheaper and
more technologically advanced financial partners, but When pricing is too high:
only if it appears convincing enough from a financial reg-
ulatory perspective. Startups need to understand “how • The business might never catch up because the
banks think” and consider several aspects that are only product might be deemed unsellable by the bank’s or
important to their financial partners. payment provider’s subjective evaluation;
• End users tend to have bigger expectations, which
The most important aspect is to show that the new busi- might result in more refund requests or chargebacks
ness is not bringing any illegal transactions, knowingly that the bank or payment provider has to deal with;
or unknowingly, which can create headaches, penalties or • It attracts more fraud, which can risk the whole
even a revocation of the license of the bank or payment operation of the provider;
provider they are aiming to work with.
• It activates increased compliance scrutiny which
However, they also need to show reasonable profitability, is not only more expensive, but also more time-
because if the business never takes off, the financial part- consuming.
ners lose as well, since there will be no revenue to cover
their hefty onboarding and ongoing fees. When prices are too low:
• The business might never be profitable enough to
This means banks and payment service providers only cover the provider’s fees;
want to work with startups that show signs of viability
and predictability. But what are they looking at, precisely? • It might indicate a scam or a fraud;
• It might result in lower quality, which triggers
Financial planning complaints;
The most critical one, of course, is financial planning. But • It can trigger various compliance issues when a
most startup business plans fail here immediately: the large number of anonymous transactions enter the
most commonly overlooked aspect in new businesses is provider’s account.
the lack of planning for processing and banking fees. Financial institutions prefer to see a healthy and consistent

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