In this article we are going to look at several ways to implement a payment processing solution available to merchants and payment service providers who process credit card and ACH transactions.
On the importance of payment processing solutions
At some point many companies that process credit cards face the question of how to implement their connectivity with a credit card processor. There are various options these companies can choose from. Each of the payment processing solutions (direct acquirer integration, connector or payment gateway) has its strengths and weaknesses, so merchants and payment service providers must consider their particular needs before choosing the most suitable integration option. The following sections cover each of the possible solutions.
Direct acquirer integration
Direct acquirer (or processor) integration envisions implementation of the processor’s specification. The integration software code is written as part of the merchant’s application going directly into the payment processor’s system.
The advantages of this payment processing solution are as follows:
- the merchant is communicating directly with the processor, and no intermediaries are involved; consequently the number of potential intermediary points of failure is lower
- no additional costs are incurred by the merchant since no middleware technology is used
- direct acquirer integration tends to perform better even on high transaction volumes
The disadvantages of direct acquirer integration are as follows:
- the solution is one of the most difficult ones to implement, as integration specifications for platforms used by many payment processors are complex (often due to legacy technology that they rely on) and, consequently, much effort is required to implement the format
- certification queues tend to be long and the time to open a project and get a specialist assigned can be quite extensive
- because of the complexity of the specification, certification process requires multiple iterations (certification test executions), and each of them tends to take considerable amount of time
While direct acquirer (processor) integration provides merchants with the greatest control and flexibility and lowest long-term per-transaction cost, it is one of the most time-consuming approaches, carrying significant upfront cost in comparison to other options because of complexity of specifications and legacy technologies used by payment processors.
A connector represents a special software component that implements a payment processing specification and can be incorporated into a merchant’s application to simplify direct acquirer integrations.
While a merchant, using a connector component still has to go through certification with the payment processor, the implementation phase is significantly simplified.
Connectors can be of two types:
- Software component – the component is integrated within the main application and is used to format messages.
- Middleware – a piece of software installed separately from the merchant’s application. It receives incoming messages and converts them to the format of the underlying payment processor.
The advantages of connectors as a payment processing solution type are listed below:
- connectors tend to reduce the development effort during the integration phase and can be used by wider range of software developers, not only by the most highly experienced ones
- a connector eliminates the need for the integration code and subsequent maintenance
- when new processing features become available, connector vendor takes care of support of these features
The disadvantages of connectors are as follows:
- depending on the quality of the connector, performance problems might be experienced on high transaction volumes or in multi-threaded environment
- it is difficult to introduce any types of tweaks or adjustments into connectors with no source code available, if necessary. Consequently, if something is wrong, no one but the vendor can fix the problem
- upfront cost associated with licensing of the connector
For merchants that prefer upfront investment (as opposed to per-transaction gateway cost) and want to go with direct integration, eliminating intermediaries, connectors provide a good option to use, especially if their transaction volumes are not extremely high.
Payment gateway solution
A payment gateway is a solution similar to a middleware connector, incorporating various additional functions and supporting several different payment processors simultaneously. A payment gateway usually has an infrastructure to maintain merchant preferences and configuration settings associated with it.
The advantages of such payment processing solution as a payment gateway are as follows:
- integration and certification processes are considerably simplified
- additional features, such as host capture, are available
- simplified PCI-compliance certification (payment gateways support pay-pages and other related solutions, thus, reducing merchant’s PCI scope); (more information on PCI compiance can be found here and here )
- support of recurring payments
The disadvantages of payment gateways are listed below:
- significant upfront fee / license cost or increased ongoing per-transaction cost
- when hosted solution is used, a merchant has lower degree of control over the network environment of a payment gateway
- merchant has low degree of control of the underlying logic of transaction processing
Despite the limitations of the payment gateway solution, it is the preferred choice of most merchants and payment service providers today.
Every merchant, processing credit cards, must make an informed choice from among payment processing solutions (integration options), depending on the merchant’s business size, overall transaction volume and specific business needs.
The next post will represent a detailed coverage of payment gateway solution types and payment gateway pricing structures.