There are tons of ways businesses get paid for their product or service. You have credit or debit cards, of course. In addition to this, you also have online services like Paypal and Stripe.
What’s common to all these payment processors? High transaction fees!
A company like Visa or Mastercard charges the business around 2.5% for every transaction. So, when a customer swipes a payment for $100, the business only gets around $97.5.
That is, a company with a turnover of $100,000 loses close to $2500 in just processing payments.
Paypal is even worse. The processing charges are $0.30 plus 3.5% on every transaction.
For overseas transactions, there are currency conversion charges as well. Add to this, the really poor conversion rates that Paypal offers to its users.
All in all, users lose as much as 5-6% on all their transactions.
Wire transfers are way cheaper. But it’s a pain to get done from the sender’s side. There are dozens of fields to fill up, and even after you do all this, the transaction could get stalled because the client got the details of the SWIFT code, or intermediary bank or clearing code wrong.
As a vendor, it’s awkward to keep following up with your client on this.
There has to be a better way, right?
Yes, there is, and it’s no secret. The good old check (or cheque if you are from one of the Commonwealth nations).
Checks do not cost a lot, relatively speaking, of course. In the US, banks charge between $7-$10 for the “check-cashing service”. But in many countries (like India, since I am from here), it’s technically free. You simply walk into your bank and deposit it – as simple as that.
So if you are someone who has a turnover of $10,000 a month, you can save close between $250-$600 each month simply by getting paid in checks instead of Paypal or other electronic payment methods.
But getting paid in checks is not easy
Getting paid in checks is okay when you meet your client face-to-face. But what if you work with someone from the other side of the country? What if your client is overseas?
Here’s the business idea – create a service that facilitates check payment between parties that are based in different geographies.
Well, don’t we have echecks for that?
Here’s the thing – electronic checks place the onus on the payer (or client, in this case) to change their workflow. If you are working with a large company that pays in checks to hundreds of their suppliers and vendors, they are not going to change their process just because one of their vendors asks them to.
Also, echecks won’t work if you are looking for a cross-border transaction.
There is a big opportunity in building a service that keeps the workflow simple and unchanged at the client’s end and still lets the vendor get paid in the mode they prefer.
Here’s how it will work
Let’s call your company “Rafrador”
The service provider (the one who gets paid) signs up with Rafrador. They will be given a unique code – this unique code is entered either in the memo field of the check, or is part of the PO BOX that is held by Rafrador.
There are a couple of different workflows from here. When it is time to get paid, the service provider requests their client to draw a check in favor of Rafrador
OR, if that is going to cause a trust issue, they may also draw the check in favor of the service provider. They are also asked to enter the unique code in the memo.
Another way to do this would be to let the client draw a check in favor of the service provider. The unique code, in this case, will be part of the address that they will be asked to send the check to (this is similar to a PO Box, except that it will be delivered to an address that is leased by Rafrador)
If the client requires the service provider to collect the check from their office, Rafrador can tie up with a service like Postmates to get it collected and delivered to their address
Rafrador thus collects all the different checks that is sent to all of their different users.
If the checks are drawn in favor of Rafrador, these are encashed, and for a small fee is sent over wire transfer to the account of the recipient.
Checks that are drawn in favor of the service provider are consolidated and posted to the address they have given you.
In essence, this business takes care of all the hassles with check payment from the client and thus makes the process seamless for both sides.
If you are a freelancer working from India or Philippines and want to get paid by your American client, this process can cost you less than $50 regardless of how much money your client pays you. Think of all the hundreds of dollars you could save by not getting paid via Paypal!
What do you think of this business idea? Think you are up for it?
