SMS Payment: 8 Things to Know About Text to Pay

Thinking about setting up a text message payment service for your business but aren’t sure where to start? Well, you’ve come to the right place. Once you start looking into the possibilities it can get a bit overwhelming, and you’re not alone in your search.

While SMS payments still aren’t the preferred payment method for businesses or customers (especially for small, casual purchases), they can be fantastic tools in certain situations and are getting more popular every year.

We’re going to cover the basics of SMS payments and then dig into 8 things you should know before deciding to install them in your business.

What is SMS payment?

SMS stands for short-message-service and supports up to 160 characters. SMS payments are simply payment techniques that involve SMS text messages.

8 Things to Know About SMS Payments

1. There isn’t just one type of SMS system

As we just mentioned, SMS payment is sort of a broad term. There are a variety of companies tackling the text-to-pay challenges and more companies enter the space every year.

Pricing and individual models aside, there are a few main categories text systems fall under:

  • Short link delivery that leads to separate processor pages. These are systems that just deliver a shortened link that leads customers to a specific payment page with the amount and/or item filled in.
  • The system sends a prompt with the specific amount and a keyword to initiate a payment. Customers have to input information before this type of transaction is possible, but it can be super convenient once it is.
  • Users set up a PIN that initiates a payment when entered after specific prompts. This form asks customers to confirm a purchase with a unique PIN established in a previous sign-up process.
  • Bills are added to their phone bill. Popular with charities, this adds the chosen amount to a customer’s phone bill but is limited in flexibility and transaction value.

2. Transactions aren't processed within the app

Just because you can initiate a payment conversation and confirmation in a texting app doesn’t mean the actual processing occurs within the app.

Typically, a customer has a saved account in a secure system that was previously set up — or, it’s tacked on to their phone bill.

3. Phone carrier setups for charities are pricey

Probably the most familiar type of SMS payment system is when a charity texts a customer and asks them to text a specific word back to give a donation. Then that customer sees that amount added to their phone bill (this includes any fees taken by the companies involved).

While this can seem like a convenient system (and it is in certain situations), there are usually small transaction limits ranging from $5 - $15 on these services to prevent fraud and potential chargebacks.

If you are working outside of non-profits it’s probably better to use a different type of SMS payment system.

4. SMS payment is usually handled through a third-party

You’ve got lots of options when it comes to text-to-pay systems, and the way these companies charge can vary widely as well, but they typically offer package rates on texts or transactions + a nominal fee for every transaction.

5. Text-to-pay systems still charge transaction fees

Just because a customer is paying through a separate system doesn’t mean those transaction fees aren’t bundled in. As a general rule of thumb, all transactions will have interchange fees, etc., tacked on.

6. SMS payments don’t have to stop at phones

You can have a similar user experience on social media apps like Facebook and Instagram.

Some services let you have a universal system across texting and social media app messages. This is convenient because not only can you reach consumers where they prefer, but you can also take your user flow and copy and duplicate it across multiple outlets.

7. Pay-by-text systems can double as marketing tools

While customers don’t appreciate sales messages all the time, you can use their phone and credit card on file to your advantage.

For example, if someone buys an ENO hammock through an SMS payment system and you know most customers aren’t aware that you need straps with your ENO, you could send a message suggesting them to add the straps in at a discount.

Or you could segment all customers by products purchased and suggest something similar or announce when a new, similar item arrives — e.g. if you sent a text to everyone who has purchased a vegetarian sandwich about your new seitan wrap, your messaging will be a lot more specific (and specificity is everything in marketing).

8. SMS texts have an open rate of 90% or higher

Text message open rates are still very good — just don’t abuse this power! Once again, no one likes a company that sends too many sales messages.

It’s easier than you think to sour a positive customer relationship. Consciously put a cap on how many messages each customer can receive and make sure you use text payments and notifications for specific marketing mechanisms instead of relying on them as your main messaging source.

Parting thoughts

Instead of looking at an SMS payment system as a major transaction type for your business, look at it as a marketing asset to assist in customer convenience around specific items or to reduce friction in certain payment situations.

Ideally, these messages are interactive and should relate to another action a customer has taken. It needs to have context, and by using it to equip and assist instead of replace, you’ll be well on your way.

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