vindicia lp

Oh Canada, or why TX success rates matter

Of late, Vindicia has been welcoming quite a few Canadian based gaming, software, and social media companies.

We also work in partnership with Tier 1 payment providers like Litle and Chase Paymentech. This brings up an interesting issue as these merchants think through their business structure and monetization plans.

Visa and Mastercard rules require that for US dollar transactions be presented by a merchant as a US domestic transaction, the merchant must have a “presence” in the US. The card associations rules may seem confounding but they’re much to do about making sure that the associations comply with US regulatory requirements and so that the associations and the card issuing banks can have some confidence about the risk created by the merchant for any given transaction. This leads to a requirement that Canadian and other foreign domiciled companies have to set up a “presence” in the US. The alternative is to use a Canadian merchant account to present international transactions priced in US Dollars.

The extra effort may seem painful, but that leads to an important consideration every company should be considering and that is the statistical likelihood that any given credit/debit card transaction will go through at any given time. One of the reasons that Vindicia has chosen to work with the very best payment providers is that, on average, those payment providers are more likely to complete a successful transaction. We often see prospective clients compare one of the top provider’s pricing to that of less capable providers and the variable most often missing in their ROI analysis that offsets their sometimes perceived higher cost is the change in revenue that an even .05% better success rate completing one time and subscription transactions creates in terms of dollars saved. When the cost of payment processing is less than 3%, it doesn’t take a lot of 97%+ transactions to offset small cost deltas between the pricing of the best in class and all the rest.

Returning to Canadian companies, analyzing the average likelihood of success of any given transaction shows that the slight extra effort is well worth it. Requests to bill a US customer from what appears to be a foreign (even just Canadian) bank will lower the statistical likelihood of each transaction that a Canadian merchant attempts as card issuers assign more risk to non domestic transactions. It takes very few incomplete transactions (from customers who wanted to buy from you!) to offset the small cost of creating a US subsidiary in a favorable US taxing area.

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