Making Sense of the Alternative Payments Marketplace

[Editor’s note: Super Rewards founder Jason Bailey shares his views on various ways of monetizing social games through virtual currency payments — aside from Facebook’s currency, Credits, which comes with its own costs and benefits. He breaks down each type of payment option by cost and implementation time, based on his market perspective. Fees and percentages included in this article are derived from his company’s experiences working with customers.]

A primary concern of most game publishers is monetizing their content. The current dominant paradigm is to collect payments for premium virtual items. An important question often asked by social game publishers is: “Should I run my own separate payment methods such as credit cards or PayPal, or should I use payment aggregators?”

Many publishers who opt to manage their own payment processes encounter a maze of payment roadblocks, including international contracts, complicated carrier fee structures, foreign currency issues, and chargebacks or reversals. With some fee structure set-ups, an earned payment of $1,000 can quickly diminish to less than $100 by the time it reaches the publisher and can take more than 90 from when the payment was made to actually reach the pocket of the publisher.

To help publishers decide what’s best for them, in order of priority and effectiveness, let’s examine the current core payment options and the costs and challenges associated with each:

1. Credit Card Payments – Credit Cards are, not surprisingly, the most dominant form of making payments online. One challenge: credit card processors mandate that chargebacks and reversal rates hover at a maximum of three percent, but to get preferred merchant rates, these rates need to be under one percent. It is not unusual to lose your account if the chargeback and reversal rates do not meet specific requirements. Expect to have someone on your team focused on dealing with these issues or risk losing your merchant account.

Fees: 3% to 8%

Implementation time: Weeks, if not months, to get a merchant account with your bank or merchant solution provider. Two weeks for a good developer to implement and test the transaction processing. You will often need to repeat this process for each county you accept payments in as most merchant accounts will only accept US, UK or CA based credit cards.

2. PayPal – While PayPal can be very simple to integrate, using this medium is not without glitches. After you have done a significant number of transactions, PayPal will sometimes either begin holding money back or place the account on “lockdown.” In addition, sometimes a person can reverse a payment transaction, in which case PayPal usually errs on the side of the customer, resulting in a lost payment. Reversal rates on virtual currencies can be very high. Just as it is easy to click-click and buy some pixels, it is also very easy to go click-click and reverse the charges. Buyer’s remorse on colorful pixels and virtual tractors can be high.

Fees: 4% to 10%. Expect a 10% to 15% revenue lift by adding PayPal to your existing credit card implementation, if credit cards are the only option you offer.

Implementation time: Short (a few hours for a good developer). But the follow-up with refunds, reversals, and payment disputes can be significant.

3. Offers – Offers are advertisements that provide players an opportunity to earn in-game points, currency, or other rewards in exchange for actions such as signing up for a service, responding to a survey, watching video ads, or shopping at online merchants. This revenue stream can be a good fit for users who want points but don’t want to make a direct payment, and are the most appealing when matched with advertisements that users would otherwise be interested in, anyway. Offers also get some users accustomed to getting virtual currency, prompting them to pay directly later. However, some users take offers with the intention of not following through — earning points in a game, while canceling the offer they completed. Offer providers have also faced severe criticism for running deceitful or low-quality advertisements, although the industry has worked to increase offer quality in recent months

Fees: None, besides a revenue share on the ads. Expect around a 20% lift in revenue by adding offers, although results can be significantly lower or higher, based on type of offer, implementation, and other factors.

Implementation time: 30 minutes to 4 hours, depending on the depth and customization of the integration.

4. Mobile Payments – Mobile phone payments allow consumers to pay for digital goods via a mobile phone. The costs are added to their monthly phone bill. Currently, there are several payment providers out there (Zong, Paymo, and a half-dozen others). Some options may accept payments in Norway and Sweden, but not in Mexico or Columbia. All will cover the big countries like the US and UK, but one may cover Sprint, but not AT&T. The solution is to integrate multiple providers.

Fees: 15% to 90% depending on country, carrier and provider. In countries such as the UK, mobile payments are common and the costs are low. In the US and Canada, the carriers take margins as high as 50%. Also expect payment terms in the net 90 range (some countries are net 365). Expect a 5% or so uptick in revenue by adding mobile payment options.

Implementation time: 5 to 10 days of development and testing per integration, also set aside a good amount of time to read thick contracts.

5. Landline Phone Payments – This type of payment, which allows users to charge payments to their home phone bill, shares the same issues as mobile payments.

Fees: 30% to 50% Expect a 1% to 2% uptick for this option.

Implementation time: Same as mobile payments. Risk: High reversal rates.

6. Stored Value Card –There are about 30 different cards available to consumers, everywhere from WalMart to 7-Eleven. Some cards are only available on the West Coast, while others are just on the East Coast. For true coverage, you should plan to integrate about eight of these cards.

Fees: 15% to 30%. Uptick in revenue depends on your demographics. If you have a young, US-based group of players, uptick can be as much as 10% or more. On average, however, it is much lower.

Implementation time: A couple of days for each. Also, allow about a week of back and forth for the contracts on each.

7. Debit from Bank Account Payments – Potential issues with debit: some types of bank accounts do not allow direct debits; different policies for different banks internationally; and the potential for direct debit fraud.

Fees: 5% to 20% Expect an uptick of 3% to 5%.

Implementation time: The challenge here is getting approved and completing the contract process, which can take months.

8. Mail-in Cash – This type of payment is not too popular with consumers, given the extra steps and waiting period required.

Fees: None. Expected uptick is less than 1%.

9. Wire payments – Many consider this not worth the hassle if you only make $1,000 per day and the expected uptick would only be a few dollars. But if you are generating $100,000 per day, this may be worth the trouble.

Fees: 5% to 15%

Now that we have reviewed the options, one question remains: What is the best course of action? Naturally I am slightly biased here, but the most important things to consider are speed to market and focusing on your core expertise. You can spend significant time building out all of these options. We highly recommend that you do as more is better.

Or you can pull a simple one stop, one implementation, one payment source from us, or one of my competitors for that matter. Our pitch is usually this: “Game developers focus on what they do best, building and growing highly engaging games, and have the monetization solution provider do what they do best, manages dozens of payment options from a hundred plus countries, across millions of users. Whichever avenue you choose, we hope this information will help you decide the best payment options for you.

Jason Bailey is the founder of online virtual currency monetization platform Super Rewards. He sold the company to Adknowledge in July of 2009 and became the advertising network’s general manager of virtual currencies.