Ondřej Buben (Shoptet Pay): Financial companies manually approve payment gateways for e-shops – it takes them up to a month.

Earlier this year, Shoptet, which helps around 30,000 e-shops do business, launched its payment gateway, Shoptet Pay. The interest in it was enormous and hasn't subsided to this day. "Thanks to our set processes and rules, we can activate the payment gateway for e-shops within 24 hours. It takes competitors up to a month," says Shoptet Pay CEO Ondřej Buben in the Adastra podcast.

  • Why are e-shops so interested in Shoptet Pay?
  • What is the role of cash on a delivery versus deferred payments in the Czech market?
  • What are the pitfalls of card payments in e-shops, and how can these problems be solved?
  • Where will e-commerce go in the future?

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Ivana Karhanová: The payment gateway looks simple from the outside. A piece of code that can pay by card. But the market is moving forward in this direction as well. Shoptet launched its own Shoptet Pay gateway in early 2022. I’ll be chatting with Ondrej Buben, CEO of Shoptet Pay, about it and where the whole e-commerce thing is going. Hello.

Ondřej Buben: Hello.

Ivana Karhanová: In the middle of the year, after about six months of operation, over two thousand e-shops joined Shoptet Pay. How many are there now?

Ondřej Buben: We are now approaching three and a half thousand. That number is constantly growing. For the first time, we were very surprised by the interest e-shops showed toward Shoptet Pay. Even though we have a number of other payment gateways on our platform, the interest is really huge and hasn’t subsided yet.

Ivana Karhanová: You say you were surprised. When I look at that number from the outside as someone unfamiliar with it, the two thousand doesn’t seem like a huge number to me, given the thirty thousand or so e-shops you have.

Ondřej Buben: We only ran on it for six months before we got to two thousand. It has to be cleared. It has to go through some monitoring. So for me, it’s pretty fast.

Plus, those e-shops sometimes want to change their current solution slowly. So, especially if they are happy, they question why they should or should not migrate.

So we’ve been successful, especially with new e-shops and existing e-shops that already had their solution but are migrating to us because we’re trying to offer them the various benefits that integration with Shoptet Pay can bring.

Ivana Karhanová: What other expectations do you have in this direction? What kind of numbers do you think you’re able to get to at all within those e-stores?

Ondřej Buben: What is important here is that not every e-shop wants to have card payment on their e-shop. Some are focused on wholesale, where they mostly pay by invoice, so they don’t need card payment.

That said, the total number of 30,000 e-shops is a part number to get to, but I expect we will be able to get to at least half of that number. That means roughly 15,000.

Ivana Karhanová: The Czech market has certain specifics. As far as e-shops are concerned, it is due to cash on delivery, which many customers use. So if we look at the Czech market, how is it distributed now in terms of payments?

Ondřej Buben: As you mention, the history of e-shops is that it started here mainly with cash on delivery. Bank transfers started to be added to that, where e-shops were working with the fact that customers were afraid to pay in advance. That is, they didn’t want to choose the transfer and preferred cash on delivery, especially for e-shops that they were not familiar with, didn’t have a history, or were not known. But we started to shift that.

Cash on delivery started to move away from cash on delivery and moved a lot into bank transfers. Still, credit cards started to come in, with a big change in those transfers, for example, when they started with instant transfers where banks allowed instant account-to-account transfers. It just manifested itself in e-shops offering payment via QR code.

The person paying simply retrieves it and pays quickly. The e-shop has it in their account immediately and can ship the goods immediately. So it’s started to move away from the cash on delivery. That means cash on delivery could have been as much as ninety-five percent. Now we have cash on delivery at about 30 percent.

Bank transfers account for thirty-five percent of all orders, and after that come credit cards with some twenty-five percent, and that number is already going down. Then, of course, there are some deferred payments, credit payments, or personal collections, but these are smaller turnovers.

Ivana Karhanová: Do you know what percentage of the payments will fall off at the end – when I have to pay at the conversion itself? I have the goods in my basket, and the transaction is almost final. But it still doesn’t go through?

Ondřej Buben: Yes, it varies from method to method there. We track if the order is completed. That is, the send order is ticked, and then the next process starts. If it becomes cash on delivery, then, of course, the goods are shipped. But, the customer must first pick it up and pay for it.

In cash on delivery, unfortunately, we don’t have enough data to judge this. We only have information from e-shops that complain about cash on delivery that they get a lot of parcels returned, have a lot of administration with it, and are not completely sure that they will get the money, which is complicated.

With bank transfer, it’s a relatively simple payment, but again, we don’t have 100% data on the conversion. And in terms of card payments, that conversion there can get up to ninety-nine percent, depending on the e-shops.

For some e-shops that have, for example, an older clientele that doesn’t want to pay by card, the conversion can go down. This is because many e-shops make card payments their primary payment method, and some payers will go through the entire ordering process without changing that payment method. So when it comes to completing the order, they are redirected to the payment gateway, and at that point, they find out that they should pay by card, but because they don’t have a card, they don’t want to pay with it, so they leave.

It’s typical of specific types of e-commerce stores. I’ve come across this with a site aimed at joiners. For example, we’ve had Windows XP, where full payment gateway support is not possible because of security, so the conversion is a bit lower. But with an e-shop, if that customer wants to pay, it’s possible to get high numbers.

The biggest problem that can occur during payment is during the verification done through the bank. Verification has had to be done through two-factor authentication for the last few years. Banks have come up with their keys, tokens, e-pins, and more.

And that’s where we see the big losses. So we’re trying to optimize that part within Shoptet Pay, taking advantage of all the options that PSD2 allows and trying to skip that authentication as much as possible.

Ivana Karhanová: Any idea why it’s failing on that verification?

Ondřej Buben: We have an idea. It’s partly about the customer and partly about the overall process. It’s the payment that goes through several entities. That is, it starts at the e-shop, goes through their payment gateway, it goes through their acquirer, which has a connection to the Visa and Mastercard card companies. Then the transaction goes through Visa and Mastercard, goes to the bank, and then through other servers.

So many entities go into that, and it can get stuck anywhere on connectivity, on all sorts of things, and especially because of regulation, there are certain time constraints. So that means that transaction can’t be completed if you don’t get to the bank within thirty-five seconds to do the verification.

We’ve observed that when you pay on a mobile device, you’re on a traditional site, you pay with your card, and you go into your banking to that key to verify it. You verify it, but then for that transaction to be completed, you have to go back to that browser. But some banks, for example, Česká spořitelna, will write to you: Go back to your merchant, which is great. If the person follows that, the transaction can be completed.

But some banks, after that verification, will say: The transaction is complete. What do you want to do next? And if that person doesn’t go back to that website or payment gateway within ten minutes, that transaction can’t be completed. So that’s where we see these problems, which is the connection between that customer and the bank. But then we also often see, for example, one-off outages at the bank. So then we can see that the transaction is going through, and for one particular card, it might not go through for a while.

Ivana Karhanová: Why did you launch your payment gateway in the first place? Because you said yourself that Shoptet offers customers several other solutions, nowadays competitive with Shoptet.

Ondřej Buben: It’s true, we have five or eight other payment gateways on Shoptet. Shoptet is focused on creating an e-shop for those e-shoppers so that customers can shop with them and create orders. That’s the first step. But e-shoppers want to have that e-shop to run their business to make money.

That means creating an order is the first step. But in the final step, there are two more steps that they need to do after creating the order: to accept the money for their order and, of course, to deliver that order either by personal collection or through a carrier. By building Shoptet on the fact that they want to help stores with their day-to-day operations and save them administration, so we just wanted to move to the next part and help them with payments. That’s why Shoptet Pay was created.

And the other fairly significant step that led to this is the response from e-shoppers who could set up Shoptet in a few clicks. Within five minutes, you have an e-shop set up, and you can do business immediately, but it sometimes takes 14 days or even a month to activate a payment gateway in today’s market. So if you want to set up an e-shop, for example, now for Christmas and check out quickly, you don’t want to wait 14 days or a month before you can accept card payments.

Ivana Karhanová: What’s taking so long to get that payment gateway up and running? Because it’s just a piece of code that actually integrates into the site.

Ondřej Buben: A payment gateway, especially if it’s via card payment, it’s a payment service. It’s a payment service regulated by Czech and European legislation, and any entity that provides a payment service must comply with regulatory requirements. At the same time, in addition to the regulatory requirements, there are also the obligations of the card companies Mastercard and Visa add additional obligations.

So, if a payment service is to be enabled, the regulation implies, of course, the identification of that entity. The KYC has to take place, that is to say, to check the IDs or who the owner is. And then the card company rules imply that you really have to know your e-commerce guy. There are certain segments, for example, guns, which are not allowed to be sold on that e-shop, and therefore there has to be approval of that e-shop.

This overall approval is done and should be done properly by the so-called acquirer, that is, the one who is directly licensed and directly connected to the card companies. It depends on what processes he has set up, that is, how he can carry out this validation, whether he does it manually, and whether he has the tools to do it.

Ivana Karhanová: I was going to ask if they do it manually since it takes them so long.

Ondřej Buben: In my experience, some tools can screen the website, they can screen by keywords, and they can give alerts if there is something that doesn’t seem right, but in the end, the rules of the card companies require to check the terms and conditions, GDPR terms and conditions and so on. And those tools don’t quite exist for that today.

That means at least for the initial check, other than manual, in my opinion, there’s currently no equal. It’s sad, but it’s true. Even though we have that control with us manually, we still manage to approve e-shops and activate them within 24 hours.

Ivana Karhanová: What’s behind the fact that you can do it within 24 hours, and it takes two, three, four weeks as standard, when the process is still partly manual?

Ondřej Buben: It’s because we have built processes and rules, and our colleagues in our onboarding team are properly trained on what to look for when they can afford to approve it, when they can afford not to approve it, and inform the e-shop what the problem is. So it goes fairly quickly.

With competitors, we perceive that they either don’t have clear rules or are just in the role of what we call payment facilitators. And the approval maybe doesn’t go directly through them, but it has to go through the acquirer because more entities are involved in the approval, and at that point, it gets longer.

Ivana Karhanová: Shoptet Pay has e-shopper customers completely integrated with that e-shop. What does that mean for them procedurally compared to competing payment gateways?

Ondřej Buben: It starts with ordering Shoptet Pay, which is possible directly in the administration. It’s a few clicks away. You don’t have to upload any documents at all in the first phase. So you don’t have to go anywhere in the branch, and you don’t have to verify yourself online at that point.

So the first step is just in this onboarding, where we can activate you very quickly, and you can do the ordering within a minute.  If somebody has a more complex ownership structure, that might take up to five minutes.

But it’s all in the admin from the ordering. You don’t have to go to any other website, you don’t have to register anywhere else, and everything gets checked in. Then, in the second step after activation, we add a straight payment method. We link this to all the tax documents, and all the payment gateway settings are still directly in the administration. So if you want to set up automatic emails and automatic status changes based on whether an order has been paid or not paid, you’ll find it all in that admin.

Similarly, this then follows up when a payment goes through or when a payment is in progress, we put a very deep detail in the order detail of what’s happening with the transaction, which was just one of the pieces of information that we had from e-shoppers that they mostly didn’t know why their payment didn’t go through with other payment gateways. So they only learned yes or no and didn’t learn the other bigger detail.

We do try to put as much information as possible in the order details if there was a payment attempt. That is, if that customer even got to the payment gateway and all the components of the payment gateway were loaded so that they could pay at all, which is important so that payment can take place.

The second step is to determine whether they have entered the card details, which means that if they haven’t entered them, the payment can’t take place, and we inform them of that. If they entered the card details and had to go through verification, then we can identify whether or not the verification went through. And if by chance, the payment was declined, we can tell if it was due to insufficient balance, over the limit, or other information. And we try to give all that information to the e-tailers for that order.

Ivana Karhanová: They didn’t have that before?

Ondřej Buben: No.

Ivana Karhanová: So does that mean it’s based on the need for a better user experience for that e-shopper?

Ondřej Buben: Definitely. When the e-shopper looks at the order and sees that it is unpaid, he has to find out why it has not been paid at this moment with another payment gateway, he has to go to the interface of the payment gateway to see if he can find something there, or he has to ask the customer directly what happened.

This way, he can find out exactly where the customer is in the order detail before he asks his customer why it has not been paid. And if he didn’t even try to enter his card details, he can assume that maybe he didn’t want to pay by card, so he’ll call him straight away to ask if he wants to pay by another payment method.

If his payment gateway has loaded, it may be because of an old device such as Windows XP. Someone was still using the old unsupported Internet Explorer, so what can he recommend? Did your payment gateway not load? Try it on a different device. Or don’t you want to change your payment method? So it’s also an experience for that customer because the e-shop can communicate with them much better and know exactly what is going on.

Ivana Karhanová: Can you monitor all the outages and possibly evaluate what it’s crashed on or what the reason is, even if it’s on the device side of that end customer, that e-shop?

Ondřej Buben: We monitor it. For some things, we can say with 100% accuracy. For some things, it’s more of a guess. That is if that customer just entered card details. There was an authentication. We know that we have redirected them and that we have initiated a redirect to that bank, but given that it’s a payment gateway, it’s sensitive, and we can’t put that much logging or any measurements in there, of course.

So we know that we initiated it, but we don’t know whether or not he got to that bank, whether he actually verified it at that bank and just didn’t come back, or whether he closed it at that bank. So these things we have to rather guess with the understanding that if he doesn’t get back to us within, say, fifteen minutes, we know that he got lost somewhere in the process, so we can’t say for sure exactly where the problem was, but we can at least identify the part of the process where the user got lost.

Ivana Karhanová: Where do you think the overall online sales or e-commerce segment is heading now? And what are the next challenges or visions for where to move it?

Ondřej Buben: As far as payments are concerned, I think there is a really big crowd in the Czech Republic that is still not letting up. We’ll see how much it disappears because it’s gone from 95 percent to 30 percent. Its decline has been fairly steady over the last few years, but it’s easing. The question is how much it will fall. I don’t think it will go below twenty-five percent, twenty percent below.

Unless the cash on delivery is regulated somehow, we have card payments, which are on the rise. There is a new launch in card payments, the so-called Click to Pay method, which is relatively new and allows you to tokenize your card through card companies.

That means that you don’t have that card stored in your browser, you don’t have it stored with that merchant or payment gateway, but you can be identified through email with the card companies and with your bank, and it allows you to pay without entering card details. So this may help maybe a little bit more with card payments, which will increase its share.

Ivana Karhanová: Does that mean that instead of entering card details, I just enter my email, and the e-shop will know what card to request?

Ondřej Buben: It’s similar to Apple Pay or Google Pay, but not everyone uses them. I think the new Click to Pay method might not completely affect those who use Apple Pay because the user experience there is significantly better at the moment, and I don’t think it will be able to replace it.

But for those who don’t use Google Pay or don’t want to store their card that way in the browser or somewhere else, the Click to Pay payment method, which is based on the standards that card companies have to follow as well, with the fact that when you get to the payment gateway, it already passes on email, billing information, and other information today so that the bank can skip the strong verification, for example, that it can say: Yes, this is a client of mine that I know has exactly these billing and delivery details.

Ivana Karhanová: That transaction doesn’t show any risks.

Ondřej Buben: Yes. That data is already being transferred. And at this point, if you’re already enrolled in Click to Pay with your bank, if your email is identified there, then within the payment gateway, whatever device you’re going to be shopping on, you’re already going to be identified because of your email. You’re not going to be offered those cards right away.

That would be weird if you’re on a device that you haven’t paid on yet, so it’s just a quick verification via text message that you get from Visa or Mastercard. So that’s how you authenticate. At that point, you’re presented with the cards you have enrolled in Click to Pay and you just choose which one you want to pay with.

So you don’t have to type in the full card number. You don’t have to fill in the expiry date. At most, you fill in the CVV on the first payment.

Ivana Karhanová: So it’s simplifying the payment methods. On the other hand, there’s always more pressure for stronger authentication or minimizing the risks associated with card fraud. How do we get out of this?

Ondřej Buben: In the end, this makes it easier to enter the payment card, but still, afterward, the payment takes place, and the bank may ask for strong verification. She should put every payment through strong verification unless they do a transactional analysis and decide they don’t want to apply strong verification. They must comply with that, and it still has to go through there.

With card payments, there’s a lot of focus on potential fraud, misuse of cards, and other things. I also saw this on TV recently, where someone commented on it, and he must not have been in the detail for card payments in his life, because he said complete nonsense there. Regarding possible abuse, it’s really hard to abuse that card nowadays. If someone misuses it, the bank will give you the money back.

You can claim any transaction that didn’t go through verification as not having been authorized. And the bank has to start the claims process through the card company, through the merchant, and you get the money.

Ivana Karhanová: So the abuse stems more from the fact that the user just voluntarily does something that they wouldn’t have done otherwise? Classically, fraud on Bazos or wherever you’re asked to enter data?

Ondřej Buben: Exactly. And even if he did enter the data, it’s a matter of whether or not he subsequently strongly verified it. If he has verified, he’s already in the wrong, but he can claim that he didn’t get the goods of the quality he ordered or he didn’t get them at all. That’s what all those credit cards make possible.

You’re relatively protected by the card companies, which, thankfully, so many people in the Czech Republic don’t know. So from my point of view, ideally, complaints should always be resolved with the merchant. But I think the credit card is probably one of the safest methods out there at the moment. It’s safer than a bank transfer.

Once you pay by bank transfer, if you have a dispute with the merchant, you can only deal with it purely as a civil dispute. But once you pay by card, there’s a lot of protection from card companies.

Ivana Karhanová: Shoptet will also supply payment terminals to merchants. Why are you going to such a step that suddenly, from online, is heading into the physical world?

Ondřej Buben: One thing is that we have a great demand from our e-shoppers. A large part of them has not only their e-shop but also their branch or more branches. Some of them have a personal collection, some go to trade fairs with their products, and they need a payment terminal maybe only once a month, once a quarter.

So we see the demand from our e-shoppers, and we would like to help them in this, to have everything under one roof so that if they have a payment gateway from us, they also have a payment terminal. Plus, I think there’s been a lot of merging of the physical and e-commerce worlds lately. So very few stores can afford to be without a website or an e-shop.

And I think some e-shops, when they grow big enough, then consider their own branch. It doesn’t quite apply to start-up e-shops unless they’re going to trade shows or other events, but once they get to a certain size, they’re considering those branches of their own.

Ivana Karhanová: What do you think is harder? Going from online to offline, or on the other hand, if you have a brick-and-mortar store, launching an e-shop?

Ondřej Buben: I’m probably not the one who should judge it. I guess it’s up to each merchant to decide. I think it’s going to be easier for somebody to get around, set up a lease, and do a storefront because it’s more tangible for them, they have some experience with it, for example, and they’re able to set up a branch a lot quicker than if they were to set up an e-store, deal with all the ads there, get it to be in the top five on Google, and other things, which may be a nuclear physics idea for them in the end.

So for some, it will be easier to set up a branch and for others to set up an e-shop. In that respect, by being in Shoptet for a little over a year, it would probably be easier for them to set up an e-store than a branch. But it’s very much coming together.

I do think that Shoptet now offers a beautiful solution for aspiring e-shoppers. However, it should connect beautifully with just physical stores if they need to expand its e-shop, its clientele, and the demand for its products.

Ivana Karhanová: So basically, what was discussed a while ago, when the media space was occasionally filled with opinions about whether the physical store will survive, it’s clear that both will exist when they are very closely connected offline and online.

Ondřej Buben: I don’t think it’s possible without physical commerce. Of course, the growth of e-commerce is there, it will be there, and a lot of stores will probably move into e-commerce, where you have the opportunity to reach more people. With shipping, you can ship all over the country, and you can ship internationally, which if you just have a brick-and-mortar store, you’re very dependent on just who happens to walk by and who knows about you from the neighborhood.

If you have a website, someone might Google you and say: Okay, I’ll drive 20 kilometers, 50, 150 kilometers for this store. It doesn’t work that way at all. That said, the one that e-commerce is going to grow primarily because of the reach that’s there, which is much greater.

And that’s why I think e-commerce can live without the physical world, but the physical world without e-commerce will probably have problems, except for some stores, of course.

Ivana Karhanová: Klarna, which provides deferred payments, has also recently announced its entry into the Czech market. How do you perceive the deferred payment segment? Because I think the Czech cash on delivery is up against it, which eliminates the risk of a rogue e-shop a little bit.

Ondřej Buben: I knew Klarna was planning to enter the Czech market this year. Subsequently, they were laying off about ten percent of their staff in the year’s first half, so I thought they had abandoned that plan. So I was a bit surprised when it was announced again.

As for deferred payments, in the West, deferred payments work quite well and are widespread. It’s just because e-commerce can be fraudulent, and people prefer to pay after they get the goods. So, of course, this is what deferred payments are for, but in the Czech Republic, they use cash on delivery, which doesn’t work in the West.

This means it is in direct competition with deferred payments in this country and is widespread.

Ivana Karhanová: It is also supported by the Czech Post, a state institution.

Ondřej Buben: Exactly. I don’t think, and it’s my opinion, that as long as cash on delivery works here as it does today, deferred payments will have such a great potential to rise. The moment something happens with cash on delivery, for example, it gets regulated so that it has to comply with the same rules as deferred payment providers or card payment gateways. At that point, they will be a little bit more even. At least the battlefield will be even between deferred payment and cash on delivery.

And deferred payment might have a better chance of grabbing some of that cash on delivery. It would be a perfectly logical approach. At the same time, deferred payments come with various benefits, collecting points for every new order the customer pays for through that deferred payment, then getting additional discounts, and so on. At that point, deferred payment could become more attractive than cash on delivery.

But there may still be the fact that deferred payment is a more modern technology, and there’s online onboarding. But, again, for example, there’s card payment, which may not appeal to customers who don’t want to pay by card, aren’t that e-commerce savvy, and really only want to pay cash and on delivery, and that’s where it may not come across.

Ivana Karhanová: Says Ondřej Buben, director of Shoptet Pay. Thank you for coming into the studio and sometimes for hearing from us.

Ondřej Buben: Thank you.