An interview with Lasma Kuhtarska, Co-founder and Strategy Advisor at Noda, on the evolution of payment processing and cost-saving strategies for merchants.
Q: Why are card processing fees such a burden for businesses today?
A: Card processing fees can significantly impact a business's profitability, especially for high-volume merchants. These fees include interchange fees, scheme fees, and the processor’s markup, which together can take 2–3% or more of the transaction value. Over time, these costs add up, particularly for businesses with narrow profit margins. This is why finding ways to minimise these fees is so important.
Q: What makes open banking an attractive alternative to traditional card payments?
A: Open banking eliminates the need for card networks, which are responsible for many of the fees merchants face. With open banking, payments are made directly from the customer’s bank account to the merchant’s account. This not only reduces costs but also offers faster settlements and eliminates chargebacks. For example, fees with open banking are often less than 1%, compared to 2–3% for card payments. Additionally, the security features, such as Strong Customer Authentication (SCA), give both merchants and customers peace of mind.
Q: Are there other benefits of open banking beyond cost savings?
A: Absolutely. Open banking improves cash flow with near-instant settlements, which is crucial for businesses that rely on timely access to funds for inventory and operations. It also enhances the customer experience by simplifying the checkout process—customers can authorise payments securely without needing to enter card details. This reduces friction and leads to higher conversion rates. For example, in the Baltic region, where digital adoption is high, these features are driving rapid growth in open banking adoption.
Q: Apart from open banking, what other strategies can merchants use to reduce payment fees?
A: One of the most effective strategies is to renegotiate the markup fees charged by payment processors. Unlike interchange and scheme fees, which are fixed, the processor’s markup is negotiable. High-volume merchants, in particular, can often secure better rates. Additionally, exploring alternative pricing models like interchange-plus can provide more transparency, helping businesses identify where they can save.
Q: How do local payment methods and digital wallets fit into this picture?
A: Local payment methods, like BLIK in Poland or iDEAL in the Netherlands, are often more cost-effective than international card payments. They cater to regional preferences and typically have lower fees. Digital wallets, on the other hand, offer convenience and widespread acceptance. While their fees are similar to card payments, their speed and enhanced security make them a good option for certain markets. Merchants can benefit by offering a mix of these methods to meet diverse customer preferences.
Q: What makes the Baltic region particularly well-suited for open banking adoption?
A: The Baltics have a strong foundation for open banking due to their high digitalisation rates, tech-savvy populations, and supportive regulatory frameworks. Lithuania, for example, has positioned itself as a fintech hub with initiatives that encourage innovation in financial services. Open banking aligns perfectly with the region’s focus on digital efficiency and cost reduction, making it an attractive option for both merchants and customers.
Q: How does Noda support businesses in adopting open banking?
A: Noda provides merchants with a comprehensive open banking solution that’s easy to integrate and highly secure. We’re connected with over 2,000 banks across 28 countries, including the UK and Europe, which ensures broad coverage. Our solution offers near-instant settlements, competitive fees starting at 0.1%, and advanced features like AI-powered financial analytics and identity verification tools. For businesses in the Baltics and beyond, Noda is helping to modernise payment systems and drive efficiency.
Q: What advice would you give to merchants looking to reduce their payment processing costs?
A: Start by evaluating your current payment setup and understanding where the fees are coming from. Negotiate with your payment processor to lower markup fees or explore alternative pricing models like interchange-plus. At the same time, consider adopting open banking or local payment methods to diversify your payment options. By taking a strategic approach to payment processing, businesses can not only save costs but also improve their overall efficiency and customer experience.
Reducing card processing fees is no longer just an option; it’s a necessity for businesses looking to remain competitive. Open banking, alongside other payment strategies, offers a path forward by cutting costs, improving cash flow, and enhancing the customer experience.