Have a software application with a payments requirement and want to enter the Canadian market? We'll show you how.
Overview: For software applications, especially those that serve a vertical base of client user organizations, one logical way to expanding market reach is to open up the application to countries outside your initial geographical focus. Often the logical choice is a near or adjoining country. In the case of applications that were born is the United States the choice is commonly Canada.
Established and proven software applications in the U.S. are typically accepted nicely to the Canadian market. However, applications that have a requirement to accept and manage payments presents a few challenges when entering the Canadian market.
Payment Rails: The obvious needed payment rail is credit cards, and there are a plethora of options to choose from here. The Canadian credit card acquiring market is mature and pretty easily navigated, and processing costs are lower than in the U.S. It's the Canadian EFT payment rail that can be a challenge. The number of banks in Canada are few, especially in comparison to the U.S. market. Less competition can prove to make things difficult if going the ODFI acquisition route. Moreover, U.S. based businesses without a physical and strong presence in Canada can find it extremely difficult to find a sponsor bank. Banks are very careful at mitigating EFT risks, and physical presence becomes a mandate with most banks.
Banks like to know that an organization they sponsor knows how to manage EFT risks. Demonstration of risk management and your track record of it becomes extremely important. This is where a third party ACH/EFT provider can be of help to an expanding software application for Canada EFT. While the third party Canadian EFT market is nowhere near as mature as the U.S. market, there are a few - Agile Payments being one such player. Established and successful ACH processors can demonstrate a successful track record and the risk mitigation tools it has developed to a sponsor bank. Further, a well established and successful third party processor will (should) have funding to back-up any possible risk oversight that might occur. This leads to the bank then granting underwriting privileges to the third party processor.
What this means to the foreign software application seeking entry to Canada and has an EFT payments requirement is an easier path to providing that requirement.
EFT API: Integration to Canadian banks for EFT processing is a very difficult task - and that's for a third party processor who has a lot of experience in integrating with bank platforms. Canadian banks aren't streamlined to make things easy for a software application to embed EFT payment capability to a software application. The common method for software applications to make something functional for Canada EFT payments is to utilize file submission. Moreover, many Canadian banks prefer that you use a third party software application to submit the files. One of these third party applications is an antiquated Windows client that simply has the ability to format files to a given bank's specifications and receive return files. Because the application has a significant client base, we even considered an acquisition of it at one point.
That type of solution is far from integrated EFT payments functionality. If you truly want to integrate EFT payments, you'll need an API. Ideally the API that provides the EFT functionality for you can also provide the credit card integration. Better yet, why not an API that can supply the needs for both Canada and the United States, credit cards and ACH/EFT. A single integration point for both countries and both payment rails. Depending on the payments requirements and business model, often more countries can be stacked-on using the single API integration.
You want things to be hands-off for payments functionality, allowing the API integration to manage your needs (and your vertical client base) with no daily human involvement. That's where a good API integration comes into play.
Processing Costs: As we previously mentioned, credit card processing costs are less expensive than in the United States. Processing rates for credit cards in a card not present environment average about a half a percent lower than discount rates in the U.S. If an application lends itself favorably towards acceptance of EFT transactions, discount fees need not apply. Just as in the U.S., we don't charge a percentage of the transaction fee for EFT transactions, assuming low risk and no excessive transaction dollar amounts. With that in mind, EFT processing costs are significantly lower than credit card transactions, allowing your organization to add to its bottom-line.
For an application that has 1,000 transaction per month at an average sale amount of $100, the savings if all transactions are originated as EFT amounts to an annual processing cost savings of around $22,000.
Recurring Payments: Any software application that serves a customer base that has a subscription component is ideal for EFT transactions. Aside from the cost savings, there are other reasons to employ EFT as the preferred payment rail. Mainly because bank accounts don't expire. Credit cards expire, are lost and are re-issued routinely. An organization with recurring payments is more often than not left with a burden in chasing down failed card transactions for the above reasons.
On the flip-side, EFT transactions have a far lower return rate, reducing the burden of chasing down new account data. Moreover, simply by adding EFT capabilities can provide the application with an alternative payment method to fall back on if the default method fails.
Payment Facilitation: in Canada, Payment Facilitation is a possible solution for software applications that serve a vertical client base and who need to reduce the friction associated with traditional merchant account boarding. There are too many scenarios to cover in a blog post, as circumstances are relevant to a given application, the market it serves and the business model employed. The absolute best thing you can do is to have a conversation about your needs, giving the potential provider as much information as you can.
Agile Payments has been providing payment integration solutions to SaaS platforms for over 19 years. Get in touch with us and let us know your particular needs.