Acquisition Cost vs. Life Time Value of a Customer for a Payment Platform

— Competing for the attention of the customers —

By Batu Sat, Ph. D.
Founder + CEO, Mall IQ

A few thousands of years ago humans discovered the concept of coins, made up of precious metals to pay for items and services in ancient Lydia. In the modern era, for many decades leading up to 2000s cash was the dominant form of payment.

But for the last couple of decades, Credit & Debit cards issued by Banks & Credit Unions have taken over cash. In more recent years, depending on the country, even newer forms of digital payment methods are taking over.

Nowadays, consumers have many ways to pay including Credit & Debit Cards, Mobile Payment Platforms, Mobile Wallets, Buy-now-pay-later, QR-code based payments and several more…

These payment methods are facilitated by even more diverse set of institutions such as FinTechs &TechFins.

In addition to the increase in the type of institutions offering their payment methods, the sheer number of companies in each category is also growing, with the exception of Banks & Credit Unions.

In summary, Banks and Credit Unions are consolidating via mergers and acquisitions and the number of FinTechs offering payment services are increasing. The net effect is that customers today have many choices to pay compared to a decade ago. Thus, the percent of transactions passing through each institution is reducing every.

The basic unit economics of every B2C company includes the customer acquisition cost (CAC), the Life Timer Value (LTV) and a Break Even Time (BET) of a typical customer. Due to the state of competition mentioned above, CAC is higher and LTV is lower, so, it takes longer and longer for BET.