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.

If you are interested in the diagram illustrating this topic, visit UniPayGateway website.

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

Credit Card Processing for Startups

Online commerce, electronic payments, and credit card processing have become fundamental aspects of today’s economy. As a result, almost all startup companies need to decide, how they are going to process payments for themselves or on behalf of their clients.

People often tend to ask questions like: “What are the best payment processors?” (sometimes “What are the best online payment processors?”), “What is the best payment processor for accepting micropayments?”, “What is the best processor for honest pricing?”, “With regards to fees, what is the best payment processing service for a SaaS company with a low monthly price ($5 per user per month)?”, “What is the best Payment gateway for Java which can only validate cards without posting any charge on the card?”, “What’s the best payment gateway for an online factoring invoices marketplace?” etc. In fact, there are no universal answers to these questions, as the situation is a bit more complex and context-dependant. In our article we are going to explain why, and provide some guidelines, which startup businesses can follow to find optimal solutions for themselves.

As we wrote in “Payment Gateways” series, when you are choosing a potential solution to implement, before you look at credit card processing costs, associated with a particular gateway, you need to understand, whether it supports all the functionality you need.

Let us list the fundamental questions, which are relevant for you as a startup company.

Fundamental questions regarding credit card processing

  • Do you need to process payments for yourself only, or do you need to process payments on behalf of your clients (i.e. do you need to function as a payment facilitator)?
  • Do you need only card-not-present (CNP) solution for online recurring payments, or is card-present solution (EMV) also necessary?
  • Do you need to support multiple currencies or not?

In many cases before thinking about your pricing options, you need to verify, whether the listed functions are supported, and whether the gateway supports your MCC code. Beside that, if you are trying to get a merchant account abroad, you need to check, whether you can get it with the gateway you are planning to partner with.

For example, if you are an Indian merchant, trying to get a merchant account in the US, you need to check, that you have all the necessary documents to be underwritten in the US. In the very least you must have a tax ID in the US.

Then (as we’ve mentioned), you need to verify the MCC code and check, if the logic you need is available within the gateway.

As a result of this analysis, it may turn out, that your choice of payment gateways/processors can be reduced to one or two payment platforms.

Reality check

Before addressing a particular payment gateway or processor, you can also perform a “reality check”. Keep in mind that a processor’s revenue amounts approximately to 1% of your processing volume. So, if your processing volume is $ 5000, the processor gets $50. For such a modest reward processors will not offer you complex or customized solutions.

True, Stripe and PayPal may seem to be costly solutions for your business. However, if your processing volume is not very high yet, they may be the only solutions available in your case, because they have a well-developed infrastructure, allowing them to work with the so-called micro-merchants. Larger processing companies may not have such an infrastructure.

Card-present solution

If you need a card-present solution, it is important to analyze the technology you are planning to implement, the upcoming integration, and the cost of devices you are going to use. You should also verify, whether you have all the necessary EMV certifications.

PayFac model

If you need to function as a payment facilitator and issue merchant accounts, then you should pay attention to merchant onboarding and underwriting rules, adopted by your potential processing partner. You should also check, whether your potential partner has some API in place, which allows to simplify onboarding of new merchants.

Availability of starting capital

Being a startup, you may have the funds, allowing you to rent a payment platform for your business needs. If you have both money and time, you can even develop a processing platform using your in-house development team. Finally, you can license an existing white-label payment gateway solution, as we explained in our previous articles.

In these latter cases you can expect lower processing costs, but you will have to pay for support of the necessary infrastructure.

Conclusion

If you have neither the starting capital, nor processing volume, you should not try to find the “cheapest” credit card processing solution, because you are getting what you pay for. If the profit the processor gets from your transactions is low, you are going to be treated accordingly.

In these cases it might be more secure to pay slightly higher processing fees, but partner with a company, which offers robust technologies and has no funding delays. If you save 25 cents on a transaction, but then find that your account is suddenly frozen or closed, it is not a preferable option.

Is it Time to Switch to a New Payment Gateway Solution?

As merchant services industry is rapidly moving forward, new payment gateway solutions are emerging. These new solutions often offer new functionality. They are more flexible and capable of satisfying the new needs of merchants and resellers/ISO/Payment Facilitators.

The purpose of this article is to outline the main signs, indicating, that it might be appropriate for you to switch your current payment gateway solution to a new one. While some of these signs are relevant for all merchant services industry players, others apply to specific groups, such as merchants or intermediary entities (ISO and payment facilitators).

Let us review some of the signs, indicating that it is time to search for an alternative payment processing platform.

  • Processing costs and fees – your cost of processing is too high and the processing fees are being re-adjusted even though your volume has significantly grown. You may have started with small processing volumes, but now your volumes are much higher, so your current transaction processing cost is significant, because the fees you are paying are the same as before. If you are not able to re-negotiate transaction pricing with your current processor, then you should look for alternatives.
  • Funding delays – it takes too much time to get the funds you are entitled to. The funds are arbitrarily frozen and delayed, while you have a good processing history, there are no problems associated with your account and no particular reasons for suspicion and funding delays. If you are unable to resolve the issue with your current processing partner (i.e., your processor cannot provide a suitable solution), then, perhaps, it is time to look for a new one.
  • Lack of multi-currency support – you need to accept payments in multiple currencies, but your current payment platform does not support multi-currency payment processing. While you can use a different payment platform to handle additional currencies, it might also make sense to find an alternative payment gateway solution that will handle everything with one interface (from one entry point).
  • Lack of the necessary features – when you have started, your processor had a satisfying feature set, but since you started using the existing solution, your needs have changed. Now there are certain features, that you need, that are not available within your current payment processing platform. For example, traditionally, you worked with e-commerce transactions, but now you would like to handle card-present payments as well. You need to work with payment terminals and offer new solutions to your customers, but your payment gateway provider is unable to support the new technology. Or, perhaps, you would like to enroll in 3D secure program, in order to improve transaction security, but your provider does not support the respective features.
  • Reporting issues – reporting is not customizable enough. I.e., the reports are not presentable in the format that you need. There are no ways to export raw data in a format, allowing you to manipulate it. Some of the data, you would like to be able to see, such as details of processing costs is not available, etc. Perhaps, as a result of unclear reporting procedures, you experience problems while trying to reconcile your deposits properly.
  • Integration inconvenience – it is possible, that the technology, offered by your payment service provider, is not the most modern (up-to-date) one. While you managed the initial integration, supporting it imposes unnecessary costs on you. You might consider looking for an easier and more natural solution.
  • Limited branding functionality – you would like to present payment processing interface to your customers under your own brand. However, your current payment platform does not allow you to do that. As a result, lack of required branding functions limits your marketing capability and hampers your relationships with your customer base.
  • Merchant onboarding problems – as we have explained in our previous article, merchant onboarding problems are extremely relevant for payment facilitators and ISOs. More and more systems today offer real-time merchant onboarding and provisioning, which is a critical feature. It becomes one of the driving factors of competitive advantage in the merchant services industry. You may be used to submitting paperwork manually and waiting for a couple of days for the MIDs do get issued. However, your customers are demanding a more streamlined process. If your current payment gateway solution is unable to accommodate it, you may consider some additional or alternative options.

Conclusion

If some of the listed issues resonate with the pinpoints, that you have with your current payment processor, perhaps, you should consider some changes to the existing payment gateway solution, or even switching to a new one.