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