The PayMongo team explains how banks, financial services, and technology work together to give businesses and their customers an easy way to pay online
(Note: The terms used in this article may be used differently in the context of other financial institutions and services. As we are providing the simplest possible explanation to our readers, we are using the terms here as they apply to our own framework. We do not intend to set standard definitions but rather, we apply their broad uses to explain how our company works.)
Has the internet ever been more useful? At a time when our safety increasingly depends on our ability to do things remotely, e-commerce ensures that many of our wants and needs are only clicks away. Every day, online transactions empower more Filipinos to shop, pay bills, order food, and transfer money, all from the comfort of their homes.
The digital marketplace has not only changed the way we purchase goods and services, but also the way we set up shop. Over the past year, tens of thousands of online businesses registered with the Philippine government following the lockdowns brought about by the pandemic. They've gone online in hopes of jumpstarting their enterprise and catering to even more customers.
This also means we are doing more online transactions. Businesses and customers now need better online solutions, including a reliable payments infrastructure that can handle the sheer volume and sizes of payments made on a daily basis.
This is where payment providers come in.
“A payment provider is an entity or a company that enables merchants, individuals, or anyone to that effect to accept online payments,” said Luis Miguel Confesor, PayMongo's Head of Business Development. Known as Miggy in the company, he has 16 years of experience in the payments industry, previously heading acquiring teams for several banks and financial organizations, including HSBC, Maybank, and Robinson's Bank Corporation.
"We’re living in a digital world, everyone is going digital, and payments is rapidly moving into that area as well," Miggy said. Payment providers strengthen the country's online infrastructure by empowering businesses to receive and their customers to pay through various ways—be it credit or debit card, e-wallets, or over-the-counter solutions.
For businesses, having the ability to accept the full range of payment methods means expanding your market. Apart from offering customers all these options in one digital checkout, the payment providers such as PayMongo will consolidate all digital payment streams into one platform for all the merchant's accounting needs.
Payment providers also offer customers a single online checkout platform that is fast, reliable, and easy-to-use. This frees customers from the arduous and repetitive process of having to authenticate their payments online.
“When a customer goes online and goes to that merchant, he now has a variety of payment options and that’s empowering for the merchant as well," said Miggy.
When reduced to its most basic elements, the typical digital payments system boils down to the interactions between four key players: the issuer or brand, the acquirer and/or payment provider, the merchant, and the customer. Let's take a look at how these players work under the traditional payments infrastructure. (Check the bottom of the page for definitions of the financial jargon used in this article.)
In traditional banking terms, issuer might refer to a bank or any entity that offers debit and credit cards (such as Mastercard or Visa) as payment instruments to businesses and consumers. Brands on the other hand may refer to entities that don’t issue credit or debit cards but have a payment ecosystem that they offer access to; examples of this would be e-wallets such as Gcash and GrabPay. Other entities may also offer different Alternative Payment Methods (APMs), such as the over-the-counter (OTC) payments offered by 7/11, Coins.ph, Cebuana Lhuillier, and M Lhuillier. Together, these issuers, brands and entities are responsible for giving consumers and other entities the means to pay cashless.
On the other side of things, which is the payment acceptance end, we have our acquirers or payment providers. Typically, for merchants who wanted to accept payment methods other than cash, they had to integrate with an acquirer. Separate from the responsibility of issuers, acquirers or payment providers enable merchants to integrate various payment options into their payments platforms. Note, however, that a single entity can take on the responsibility of issuer and acquirer at the same time.
Additionally, if merchants wanted to integrate e-wallets and OTC options, they would have to pass through a similar process with corresponding companies of these brands.
Miggy explained: "In terms of customer acquisition they were structured much like acquiring, so these guys are payments veterans also. And they act on the same legacy system as what they were trained and what I was trained for. Technically, people go out, talk to the merchants and say 'Apply with us, submit documents, and then we’ll onboard you.'”
With the modern payments system, merchants sign a contract with the payment provider, who then connects the merchants to its network of payment schemes. Payment providers aim to develop strong connections with an acquirer and the different payment brands, so that the payment provider is trusted to offer the solutions of various payment schemes to the merchants.
According to Miggy, payment providers "are not the acquirers."
"They are partnered with the acquirers and they actually sit between the merchant and the acquirers. So, the merchant has a direct contract with us, as a payment provider, but we have a contract with the acquirer. And what we do is that we actually leverage our technology to improve the merchant lifecycle, whether it be onboarding, security, or ease of use," he said.
On its part, the payment provider applies for master accounts with the acquirer and with e-wallet and OTC solutions companies. It then uses this network of partnerships to integrate all of the payment schemes under one platform for the merchants to transact with.
Compared to the traditional system wherein each individual merchant creates a separate merchant account under different acquirers and each payment brand, now the merchants only need to partner with one institution: the payment provider. This eliminates the process of having to approach each financial institution one-by-one and compresses it into one application process for the merchant.
"We wanted to make sure that when we go to a merchant, or when we put our products out there, that onboarding for Visa, Mastercard, e-wallets, and Alternative Payment Methods is quite seamless," said Miggy.
“Technically, PayMongo made it uniform — these fragmented payment options. We accept them all. And we wanted to put it in one facility that makes it easy for the merchants to use, whether it's onboarding, whether it’s BAU (Business As Usual) already, or whether it's dashboard functionality," he added.
Under the modern payments system, banks, e-wallets, and Alternative Payment Methods expand their customer reach through the payment providers, payment providers grow their business as they partner with more merchants and payment schemes, and more businesses of all sizes can use the payments provider's technology to accept all types of payment options.
"We take on all the complexity that happens in the back-end and abstract that for the merchant." - Luis Sia, PayMongo Chief Growth Officer
Miggy explained that when an acquirer or payments brand is in the process of evaluating applications for merchant accounts, they must consider the risks behind each of these applicants. “There are risks in terms of fraudulent transactions, and in terms of non-fraudulent but misleading transactions, and misrepresentation," he said.
The process of vetting potential merchants based on risk is called "underwriting." Because acquirers (both banks and non-banks) and other payment brands are among the most established financial institutions, they generally have stricter documentation requirements when it comes to underwriting. In many cases, these requirements made for longer application processes to onboard merchants.
Miggy gave the process with acquirers as an example:
"When you’re a merchant and you want to accept credit cards, you go to an acquirer or an acquiring bank, and it will take an average of about six to twelve weeks to open an account and facilitate online payments or offline payments – through terminals – for that matter," said Miggy. "Three months. And then they will ask for a long list of documents, like three-year projections and audited financial statements." This process is in line with an acquirer’s process of underwriting.
"With the birth of payment facilitators or providers, that three-month (process) actually shrank to an average of about one week," said Miggy.
How do payment provider shorten this process?
When a payment provider partners with an acquirer, an e-wallets brand, or an Alternative Payment Method, the payment provider agrees to underwrite merchants for that financial institution. The payments provider then takes responsibility for any disputes and necessary chargebacks in case fraudulent transactions are performed through a merchant's account.
“What payment facilitators (or payment providers) do, is that they assume the liability of the merchant. So if a merchant goes to PayMongo, we take on the responsibility for that merchant so that the acquirer doesn’t have to one-by-one underwrite all of these merchants. We take on all the complexity that happens in the back-end and abstract that for the merchant," said Luis Sia, PayMongo's Chief Growth Officer.
“So we design the whole KYC (Know Your Customer) process, of course compliant to the acquirer, but at least we have control over the onboarding," added Luis.
This agreement allows the payment providers to customize key aspects of the onboarding process. As Miggy explained, payment providers like PayMongo are able to compress their paperwork requirements to request only the most essential documents.
“In terms of underwriting, with our onboarding, we saw that it doesn’t take a lot of documents to actually onboard the merchant. And the risks involved, it’s the leverage of the acquirer. The acquirer will only approve the payment facilitator or the payment provider if they actually take on the risk.”
Taking responsibility for the merchants also allows payment providers to make the KYC and onboarding process completely digital. In the case of PayMongo, after sending their documents online and coordinating with the customer success team, merchants can get their accounts approved and begin transacting in 5 to 7 business days.
Onboarding with PayMongo also involves zero set-up or monthly fees, and transaction fees all fall within accepted industry standards. (Click here for an overview of our pricing)
Partnering with a payment provider can save merchants months of setting up their back-end payments infrastructure, so that they can spend more time improving their products, setting up their logistics, and marketing which spell their businesses' growth.
"What we do is that we actually leverage our technology to improve the merchant lifecycle, whether it be onboarding, security, or ease of use." - Miggy Confesor, PayMongo Head of Business Development
For payment providers, setting up the back-end is half of the equation. The other half is product development and user experience. A strong network of partnerships has allowed them to integrate the payment methods into one platform. Now, they must ensure that merchants and customers can easily access, use, and understand this platform.
Payment providers hire software engineers and UX designers to build a smooth checkout experience for both merchants and customers. As a company that deals with businesses of all sizes and industries, PayMongo creates products that cater to each sector's specific needs.
As Miggy puts it, “Our nature is that we can pivot very quickly; we can be agile, we can churn out products very quickly, and we improve on the customer experience.”
PayMongo prioritizes seamless integration into any platform that the merchant is already running. Once a merchant is onboarded with PayMongo, it only takes a few steps to share the technology with their customers.
Those wishing to integrate PayMongo's checkout system into their e-commerce websites and applications can use PayMongo's API to do so. It was coded by PayMongo's developers to be straightforward enough for any business' own developers to deploy by themselves. In line with its mission to democratize the digital payments system, PayMongo makes its API codes accessible for anybody to test.
The PayMongo API allows merchants to integrate all its supported payment methods on their website in a way that conforms to their unique branding and aesthetic. Merchants will therefore have complete freedom over the look and feel of their checkout page.
The PayMongo platform can also be installed to Shopify and WooCommerce through third-party integrations. For merchants who have already set their websites up through these platforms, this only takes a few minutes and can be done through the admin pages of these e-commerce sites. (Look here and here for installation tutorials for Shopify and WooCommerce respectively)
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With PayMongo Links, merchants without a website or those who sell over social media can create a simple checkout page for their customers by sending them a URL via SMS, email, or any messaging platform. In order to generate this link, they can select the Links option on the dashboard, list the item being sold, its price, along with any other additional notes that he or she wants to add.
The checkout page created by the link eliminates the need to negotiate a means of payment between buyer and seller, or the need to send screenshots of deposit slips – both common practices in Philippine online selling.
Whether transacting through a business' website via API or through PayMongo Links, customers will have a seamless checkout experience with less steps, minimal dropdown boxes, and no redirects. They only have to select their payment option, place their billing details, and confirm their payment.
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"That’s our advantage. We leverage data and machine learning in our fight against fraud attacks, fraudulent transactions, and online abuse." - Ced Custodio, PayMongo Anti-Fraud Chief
Payment providers also have a duty to keep all transactions safe and secure. As the volume of online payments increases, there is also an increase in fraudsters looking to make purchases through counterfeit cards or through stolen identities, among dozens of other methods.
These are the risky transactions that Ced Custodio, PayMongo's Anti-Fraud Chief, tracks on a daily basis.
According to Ced, PayMongo's system has an advanced machine learning algorithm built into it that analyzes each payment through thousands of data points. These data points help Ced's team to confirm details of each payment and to authenticate the cardholder or user who made the transaction.
“That’s our advantage. We leverage data and machine learning in our fight against fraud attacks, fraudulent transactions, and online abuse. Our platform collates all available data and signals that ultimately give us the risk levels of each transaction. We built sophisticated rules and scoring thresholds as well to be able to stop the bad actors and, in turn, allow legitimate transactions to come in," said Ced.
PayMongo's anti-fraud mechanisms can make automated decisions that block potential fraud in real time. Its Fraud & Risk team is alerted on transactions made by high-risk cardholders at the very moment the payment is made.
Recently, PayMongo also partnered with Vesta, a Singapore-based fraud protection and e-commerce payment solutions provider. The partnership will further strengthen PayMongo's use of data science and machine learning to enhance fraud detection capabilities.
The result of PayMongo's sophisticated anti-fraud technology is that customers experience minimal conflicts when it comes to authenticating transactions, while merchants can be assured that their e-commerce platforms will be safe from fraud or cyberattacks.
“Our dispute and fraud rates are very, very low. They’re both lower than 0.1%” said Ced.
Despite the global recession caused by the pandemic, the internet economy of the Philippines remains resilient and is set to grow at breakneck speeds. A 2020 research by Bain & Company, Google, and Temasek said that the country's digital economy is expected to rise from a valuation of US $7.5 billion in 2020 to US $28 billion by 2025.
Local regulators have also taken notice of this growth and have set their own guidelines to leverage digitalization to promote financial inclusion among Filipinos. To aid our transition into a cash-lite society, the Bangko Sentral ng Pilipinas recently released a Digital Payments Transformation Roadmap which targets to convert 50% of total volume of retail payments into digital form by 2023.
Our internet economy is larger than ever, and it will only expand in the years to come. This growth will be inevitably fueled by micro, small and medium enterprises (MSMEs), which represent over 99% of local businesses. They are considered the backbone of the economy.
“One of the reasons that I joined PayMongo was that I saw that it was the first payments company to take notice of this segment - MSMEs, individual sellers, and right now, we’re branching out into enterprise segments, which means our technology caters to the broad spectrum of businesses," Miggy said.
For Luis, while traditional payment systems might have catered to larger enterprises due to their larger transaction volumes, the agility of payment providers in underwriting, onboarding, and creating solutions for MSMEs has allowed them to reach this sector better in recent years.
This trend points to a future where any business, however large or small, at whatever stage of development, can get paid online without the hassle. That is the final and most important role of payment providers — creating a level playing field for all businesses to grow. 🌱
Learn more about PayMongo through our company website. Have any questions? Feel free to reach out to us through support@paymongo.com
Alternative Payment Methods - payment methods different from cash or credit and debit cards.
Acquirer - the entity that "acquires" the transactions from the merchants, and clears and settles with the different schemes/brands/associations. Usually a bank or a financial institution, acquirers can also enable merchants to host various payment methods on their platforms. They also oversee the transactions made through a business’ merchant account with their respective entity.
API - Application Programming Interface. It is the mechanism that allows software components to communicate with one another. In PayMongo’s case, our API allows merchants to connect our payments platform into their website, service, or application.
Chargeback - meant to protect the consumer, a chargeback is the return of funds for a fraudulent or successfully disputed transaction.
Dispute - the process by which a cardholder challenges the validity of a transaction. Disputes are filed by the account/card holders who believe that a non-authorized or fraudulent transaction was made using their card/account.
Issuer - a bank or any entity that offers debit and credit cards as payment instruments to businesses and consumers.
Legacy system - relates to an old, often outdated, computer system or program.
KYC - short for “Know Your Customer”. It is the process of verifying a merchant’s identity and gathering information on his or her business, to establish the merchant’s legitimacy.
Merchant - a business-owner who has been onboarded onto the payments system.
Payment scheme - entities that set parameters around the approval of payments under their corresponding payment methods.
Underwriting - the process by which an entity (like an acquirer or a payments provider) assumes the risk associated with a merchant’s transactions. The process also involves evaluating the likeliness of fraudulent or risky transactions being performed through the merchant’s platform.
UX - User experience. It is the feelings and emotions a user experiences upon interacting with a product.