(OTCQB: GHHC) 3 Reasons Why Online Banking Payments Can Take Off


Summary Bullets

  • It’s a low cost, convenient alternative to conventional methods
  • Banking sector is eager to get into the online payment arena
  • Europe’s predisposition towards banking channel bodes well for online banking payments

Let’s cut to the chase. Having a payment option that doesn’t require credit or debit cards increases the use case for merchants through increasing the customer conversion rate. For merchants, the bottom line reads as “the more the merrier.”

How online banking is convenient?

Having more payment options at their disposal, more customers are attracted to shop at a certain merchant. Consumer only care for ease of use and security. Online banking payments allow consumers to avoid ordering credit cards, or register for an online payment account. Customers can use their online banking details to make payments without additional hassle.

BCG cites inconvenience of remembering credentials as one of the reasons users revert to cash, cards and online banking.

This is the key reason, we believe, companies like Sofort GmbH and ClickDirectPay, a subsidiary of GH Capital Inc (GHHC) will witness growth in near future. Both of these companies are involved in the provision of online banking electronic payments services, which is set to take off.

Sofort has the first mover’s advantage as more than 20 million users had already used the Sofort gateway at least once. However, this might change as ClickDirectPay offers a fixed payment structure for merchants leading to economies of scale for large merchants.

Why is cost important?

Impact of pricing can’t be emphasized enough as merchants call the shots for deploying a given gateway. Pricing decisions are the key for such deployments. Market watchers like A. T. Kearney are convinced that cost is the deciding factor for merchants when choosing a payment gateway. When asked for – “What Matters the Most When Choosing a Payment Method?” – 48% of the respondents mentioned cost, according to a survey by A.T. Kearney. In our view, choosing a fixed pricing system is the key to bring merchants aboard. And, this is exactly what ClickDirectPay is trying to do.

GH Capital, through CDP, offers small merchants with very low processing volume and little amount of transaction its service toll free at until they have reached the amount of 30 transactions. CDP offers every online merchant, small to large volume, 30 transactions for toll free every month, independent of the processing volume. See the chart below:

M L XL
Fiat Fee 9,99 Euros 49,99 Euros 99,99 Euros
Transaction Limit 31 – 500 501 – 2500 2501 – 6000
Cost per Transaction 2 cents – 32 cents 2 cents – 10 cents 1.7 cents – 4 cents

The fees are nominal compared to other payment gateways and aggregators. For instance, Square Inc (SQ) charges 2.75% per swipe, dip or tap. Pin based transactions are charged at 3.75%. This becomes expensive on scale and merchants can’t benefit from economies of scale. Also note that the leading alternative European payment method Sofort GmbH charges fees starting from 0.95% + 0.35 Euro per transaction. On the other hand, fixed payment gateway solutions, which admittedly aren’t popular as of now, enable merchants to benefit from economies of scale.

Moreover, as evident from CDP pricing, the structure is favored for low volume, high value businesses as fees are charged on per-transaction rather than on transaction-value basis.

Banking sector wants in

As GH Capital is targeting merchants with its attractive pricing, successful acquisition of merchants will create a dominos effect. Increase in number of merchants, amid flat fee model, will make CDP attractive for the other side of the market, i.e. the banking sector.

Banking has been playing catch up for quite some time in the online arena. Online payments supported by the likes of Sofort GmbH and GH Capital’s CDP gives the banking sector a golden opportunity to tap in to this market. Given the resources at their disposal, banking will push online payments aggressively, which cuts the work for Sofort and CDP, making both these companies a decent growth prospect in coming years.

Europe’s Intermediary Orientation – Good for Online

Bank loans make up the most of outside financial support for corporations in the majority of EU States. Further, bank oriented economies grow slowly compared to market oriented economies. Therefore, new payment methods that challenge the banking sector experience slow adoption in Europe. However, banks are open to online banking payments as gateway providers like Sofort and CDP keep banks in the loop.

As Europe is still heavily reliant on banking channels for payments, adding online banking payment methods might increase Merchants’ market share and improve customer conversion rate.

For instance, it’s usually difficult for students to get a credit card in Europe amid creditworthiness concerns. Using PayPal (PYPL) isn’t hassle free as it, ironically, also involves banking payments to top up the account. Addition of online payment by merchants will make things easier for students in Europe.

It’s worth mentioning that due to Europe’s inclination to use banking channels, think SEPA, online payments have been problematic, rather less convenient, for students and consumer without credit cards. This adherence to the banking channel makes online payment gateways like CDP a natural addition for most merchants in Europe rather sooner than later.

Netflix (NFLX) and Amazon (AMZN) are among the most famous platforms for students, and they have yet to offer online banking payment option. According to Netflix, 9 out of 10 American students watch Netflix. Moreover, according to survey commissioned by LendEDU, only 8% respondents (college students) said they don’t have a Netflix account. The point being, Netflix has quite a strong young user base.

Amazon is unlikely to adopt online banking payment methods as the company is trying to build its own payment system. On the other hand, Netflix is among the likely candidates to offer online banking payment option, especially in Europe. The reason is that this will allow Netflix to attract students in Europe who don’t usually have a credit card.

Online banking payments will make life easier for students as other methods like SEPA are inconvenient while PayPal is indirect as consumers have to top up for continued use. The point is that online banking payment option will boost Netflix’s user base along with benefiting gateway players like CDP, a subsidiary of GHHC, and Sofort GmbH.

Final Thoughts

Online banking will be among the dominating payment solutions in Europe going forward. This domination will be enabled by low-cost payment gateway providers like Sofort GmbH and CDP. Banking sector’s eagerness to get a share of online market along with Europe’s inclination towards financial intermediaries will also act as a catalyst for online banking payments adoption in Europe.