What Payment Gateways do Companies Like Airbnb and Uber Use?

“What payment system does Airbnb use?”, “Who is the payment gateway and processor behind Uber?”, “What payment processor/gateway do big websites use like Uber, Airbnb, Lyft, Reddit, LinkedIn, etc?”

These are the typical questions, which are asked by many people on a regular basis. Most probably, you can find accurate answers to these and similar questions only if you consult the management of the aforementioned companies. We do not know the managers of these companies and, consequently, the answers to the listed questions. However, we feel that people, asking such questions, just want to implement payment processing logic, similar to the logic used by Airbnb and Uber, in their applications. In this article we will try to explain the essence of this logic, and provide guidelines for those, who search for similar solutions.

So, what is the common feature, which unites Airbnb, Uber, and other similar companies, emerging with every coming day?

Airbnb is a marketplace for accommodation rental, while Uber is a marketplace for transportation services. Vacation rental and online transportation networks are not the only business types. If we set company names aside, we can see that the common feature is an online marketplace business model. A marketplace is an online setting, where various small-size vendors offer their products and services to various customers. In cases of Airbnb and Uber these vendors are either individuals or small businesses, providing services to other individuals and small businesses.

Online marketplaces, generally, face a challenge when it comes to payment processing. When a customer makes a purchase the payment amount should, generally, be split between multiple parties. For instance, in the case of Uber, some part of the amount should be retained by the corporate office, providing the software product, while another part should go to the driver. The case of Airbnb is conceptually the same. In some other cases, the number of recipients may be larger. For example, tomorrow Airbnb may allow cleaning companies to register on the web-site and provide their services to accommodation owners. As a result, during each rental, the payment will include Airbnb’s share (payment for web-site/online marketplace operation), the accommodation owner’s share, and the cleaning company’s share. Moreover, some part of the payment may represent taxes. Distribution of such payments is a serious challenge. Making separate charges for each recipient from the customer’s card is undesirable.

The challenge around payment distribution is solved through split funding (or split payment) mechanism. Different companies offer this mechanism as a service on the market. For example, PayPal is offering adaptive payments, Stripe and some new payment gateway software providers (such as United Thinkers) support split payment functionality, while Zift offers such functionality to software vendors.

In most cases a company like Uber of Airbnb follows a classical payment facilitator model. Uber drivers (or Airbnb accommodation owners) are its sub-merchants that need to be funded. As the number of these sub-merchants is large, beside split funding, smooth merchant on-boarding, provisioning, and remittance logic is also extremely important.

For most present-day marketplaces the opportunity to automatically onboard and provision newly singed-up merchants (or sub-merchants) is extremely relevant. In the case of Airbnb these sub-merchants are accommodation owners, while in the case of Uber they are car owners. That is why another important technology alongside split payment mechanism is merchant on-boarding technology (otherwise provisioning of each new sub-merchant would be a laborious procedure).

Conclusion

If your company uses an online marketplace business model and you want to “replicate” the business operations mechanism of Uber or Airbnb, try to find a payment service provider that supports split funding mechanism, has a smooth merchant on-boarding system, and compiles clear merchant statements, that would be easily interpreted and used for reconciliation by your customers.

Payment Gateway Cloud

In our previous article we described collaborative payment processing, based on payment gateway cloud concept. Although payment gateway cloud concept is a new one, it incorporates the results of a long evolution of payment technologies. This evolution was spurred and directed by the needs of merchants and other payment processing industry users. In order to understand it better, we are going to analyze it in comparison to a similar evolution process, which took place in web hosting industry.

Shared hosting – Payment gateway

Small online businesses and bloggers often face the need to create and maintain their own web-sites. To save money, they use a classical shared hosting, where they create their web-sites, alongside thousands of other hosting users. A similar need in payment services industry is faced by startup merchants and (again) small-size businesses. An equivalent to shared hosting in payment systems world is integration with a payment gateway. Startup merchants use the services of such companies as Authorize.Net, Stripe etc.

Virtual private server – Hosted or white-label payment gateway

With time users of a shared hosting face its limitations resulting from throughput constraints, viruses, problems with server, caused by other people, unavailability of support personnel, etc. For some businesses these problems are tolerable, while others choose to go to the next evolutionary phase, which is the virtual private server (VPS), giving them greater control over their environment and less of impact from the actions of others. An equivalent from the payment processing world is a hosted payment gateway solution, where a payment gateway instance is allocated for a specific merchant or a group of merchants.

Often VPS-based solution is also better for web-design companies with many sites and clients because it provides them with greater control over the process. In the merchant services world web-design agencies have their analogues: payment service providers and payment facilitators. PSPs and PayFacs often search for dedicated hosted payment gateway instances, commonly known as white-label payment gateways.

Dedicated server / Licensed payment gateway

While virtual private servers do guarantee significant efficiency improvement, they have their own flaws, because physical hardware is shared among several virtual machines or appliances. As a result, new limitations become evident, particularly, in cases, when high availability and fault tolerance are required. In such cases, large business users switch from VPS to dedicated servers. In payment processing world the equivalent of a dedicated server is an on-premise license of a payment gateway and deployment of the gateway in the company’s own PCI-compliant environment.

Dedicated servers solve most of the problems of web-design agencies, large online businesses etc., but support of such systems is a very complex task. Similarly, in the payment processing world, to support a licensed payment gateway solution, one has to face new issues related to server hardware, PCI compliance, etc.

We should mention a particular problem, specific to payment technologies, that doesn’t exist in the web-site hosting world. We are talking about implementation of payment integrations (with banks, processors, gateways). From technical viewpoint, integration between a gateway and a bank should not take more than a month. However, in practice, as a result of human factor, lack of organization, bureaucracy related to certification agent assignment, and instability of test servers, the process may take 8 to 12 months. If you are not familiar with integration process, you can read about it here.

Payment gateway cloud

Until recently there was no solution, allowing businesses with on-premise gateway deployments (particularly PSPs and PayFacs) to reduce the costs associated with new integrations. However, a new technology (implemented by such companies as United Thinkers) does allow your business to solve this problem.

The idea of payment gateway cloud technology is that an existing payment ecosystem can implement protocols (for transaction processing, chargeback disputing, and merchant provisioning), that are supported by the cloud within itself. If these functions are implemented, the payment ecosystem becomes capable of communicating with any other ecosystem, also connected to the cloud, where these protocols are implemented as well. As a result, any node of the payment gateway cloud can use the local integrations, implemented by any other node of the cloud.

Conclusion

If you face regular problems with integrations and the need for more back ends, but do not have the time and funds to invest in respective development efforts, you can consider exploring a UniPay-backed payment gateway cloud technology.

On the Way to Collaborative Payment Processing

Many businesses go through an evolutionary cycle as they grow. They usually start as small companies with very basic needs. Then at some point, as their processing needs become more sophisticated, they tend to outgrow the payment processing platform, chosen at the very beginning. In this article we are going to follow through a typical evolutionary path of such a company, see, which challenges it experiences, which traditional solutions can be used, and what new collaborative payment processing technology can offer.

Our story starts in a small warehouse. A group of people decides to open a book-selling business and launch a web-site, through which they are going to sell books.

Classical third-party payment gateway service

Having neither previous transaction processing volume nor PCI infrastructure, the company chooses the simplest route: to partner with an existing payment gateway, that can connect it to one or more processors that it needs.

As time goes by, the book-selling business expands rapidly, its revenue grows. It gets recurring orders from schools and universities. It starts opening stands and kiosks at book fairs, in airports and other places. Consequently, the need for card-present EMV solution as well as recurring billing solution arises. New payment processing logic is required. Beside that, the company is expanding to other geographies. Support for more currencies is needed.

The current gateway cannot accommodate all of these needs. The company starts thinking of integrations with several gateways. However, these gateways solve similar problems in different ways and cater to different market segments. The gateway, used for US dollars, has robust recurring billing, while the gateway used for Euros has an excellent on-boarding system. And still, there is no common denominator and the bookselling business has to compensate all the differences using its own development team, and, beside that, implement integrations with multiple payment processing back ends.

Gradually, the bookselling company reaches a decision to invest in its own infrastructure and develop some in-house payment gateway that would be used as a centralized system of record.
The managers start to analyze the problem of in-house payment platform development and list related costs and tasks, such as: logic to be developed, integrations, needed for payment processing, implementation of recurring billing functions and reconciliation processes. At the same time, they realize the additional costs of a new data center, PCI audit procedures, tokenization appliances and other operation costs. The company understands that the problem is too complicated to try to solve it with internal resources only.

As a result, the management decides, that the payment ecosystem should be based on some existing open-source payment technology.

Open-source payment gateway solution

The bookselling company licenses and implements an open-source payment technology (adding the missing functionality in-house) and its growth continues. Now it has its own infrastructure, which it fully controls.

With time, however, the company starts facing new problems. First, it has to redo all the necessary certifications and implement new integrations. These integrations start taking too much time to complete. Second, supporting card-present solutions in different geographical locations is not an easy task, so it poses additional challenges. Third, as the company’s core product begins to mature, the management decides to expand their operations to Europe (in addition to North America, where the business is already solidified), and understands that they need to include marketplace offering, allowing participating stores to use the company’s merchant services.

It seems like an endless cycle of growing needs, product updates and constant re-certifications. The solution comes in the form of collaborative payment processing.

The essence of collaborative payment processing

While a payment gateway can connect to a bank or a processor, it can also connect to another instance of itself, running elsewhere (in another ecosystem). Therefore, two payment ecosystems, that use the same payment processing platform as foundation, can connect to each other, forming a cloud.

While the bookselling company expands to Europe, it finds out that there is a payment service provider that uses the same open source payment processing technology. This technology has a cloud capability, allowing the two instances to get connected and, automatically, provision accounts and set them up for processing, as well as process transactions through each other.

The company signs a contract with its European partner (PSP), which allows it to underwrite merchants using the integrations of the PSP. At the same time, collection of merchant and transaction data (as well as other data) is performed using the existing in-house technology, built by the original business. As a result, without the need for any additional integrations, the bookselling company immediately gains access to all of the processing capabilities of their partner in Europe.

After some time, as the company expands further, a similar collaborative payment processing mechanism is replicated in Australia. The three companies (headquartered in the US, Europe, and Australia) form a three-sided partnership, allowing them to benefit from each other’s processing functionality.

Conclusion

Each individual case of a company’s growth is unique, and you should be looking for solutions that work best for you. However, the example, described above, is very typical of what we have observed within the industry. If you feel that this scenario resembles your business and would like to learn more about the concept of collaborative payment processing, we will be glad to provide additional information at UniPay Gateway.

In the next article we are going to describe the concept of payment gateway cloud in greater detail.