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.

Hosted, Licensed and In-house Payment Gateway Solutions

With the advance of electronic payment industry and online payments in the world, and with the increase of online payments’ percentage in the total number of payments, more and more companies are redefining their online payment processing strategies.

In order to become a payment service provider, a business needs to consider three aspects of the payment processing sometimes referred to as creation, conveyance and collection (this is the subject of our previous article).

When a business has established relationships with customers and banks, the question becomes – what particular payment gateway solution should be implemented?

The purpose of this article is to review the available payment gateway solution options as well as analyze advantages and disadvantages of each one of them.

While we previously published an article that reviewed payment gateway solutions on higher level, this time we are going to take a more in-depth look, adding another option to the “mix”. The three options we are looking at are:

  • Hosted gateway solution (“Hosted solution”)
  • Development of a payment gateway software system using internal resources (“In-house yourself”)
  • Licensing of a payment gateway software product from a third party (“Licensed solution”)

Hosted payment gateway solution

Under this option a merchant utilizes a third-party payment processing gateway, the gateway software product is hosted within the data-centers owned by the gateway service provider; per-transaction fees (and, usually, some monthly fees) are charged to the merchant.

The advantages of a hosted solution are:

  • Absence of significant upfront cost involved
  • No need for PCI-compliant infrastructure
  • Out-of-the-box high availability support
  • Overall ease of operation

The disadvantages of a hosted solution are:

  • Per-transaction and, potentially, monthly subscription fees that are felt sharply as volumes grow
  • Limited control over the processing environment
  • Lack of control over the feature-set and inability to add new features quickly
  • Potentially high cost of adding new features
  • Inability to keep specialized knowledge (such as solutions for your business-specific needs) in-house (as it becomes the property of the “host”)

For these reasons many people decide to have there own in-house solution. Here there are two options available. Solution can either can be built by an internal team (from scratch), or it can be licensed.

Self-developed payment gateway solution

The idea of a self-developed (in-house) solution is that the entire gateway software product, as well as the hosted environment is designed, built and maintained by the internal team.

The advantages of a “do-it-yourself” solution are:

  • Tailored system architecture. The system, from its “point of conception” is going to be built around the business model specific to you, and, therefore, is going to accommodate your various business needs
  • Uniqueness. The system is going to be unique to you (nobody else is going to have it, so specialized knowledge can be kept in-house as a “know-how”; features, functionality and APIs remain yours exclusively)
  • Full control over the development cycle and overall payment eco-system

The disadvantages of a “do-it-yourself” solution are:

  • A need for a group of specialized developers. Development of this type of systems, due to their complexity, requires a group of people with highly-specialized knowledge of payment processing and architectures of payment systems, as well as development skills.
  • Long initial development cycle. Depending on the complexity of the software that has to be written, it can take from 1 month (in extremely basic scenario) to 2-3 years (in case of an enterprise-level system). One to five full-time developers with specialized knowledge (see above) will have to be engaged during that period.
  • Complexity of cost forecasting. Modern payment gateways, generally, provide a multitude of features around integration APIs, on-boarding, integrations, reporting, terminal support etc. The overall scope of works is quite significant. Therefore, it might be difficult to forecast the actual cost from the very beginning, as development efforts tend to extend beyond initially allocated limits.
  • De-concentration of efforts. Quite often companies requiring payment gateways also develop and maintain their own core software product, so if payment system development is undertaken internally, some part of the internal development team has to be dedicated to payment processing as opposed to core product functionality.
  • Complexity of operations. All aspects of development and deployment have to be considered and closely monitored (core functionality, general architecture, technologies to use, high-availability deployment (clustered configuration, fail-over configuration), card storage solutions, PCI compliance)

For those that find themselves in a situation where they can’t wait to get an internal development team or they don’t want to get involved in complex development process, licensed solution can be a more suitable option.

Also, in many cases companies in need of payment processing are purely financial services companies, and for them software development services is simply an “alien” type of activity.

Licensed payment gateway solution

In a licensed solution payment gateway software is licensed from a third-party software development company, which deploys and maintains the product to a PCI environment owned by the licensee. The environment can be cloud-based servers or the licensee’s internal data center.

The advantages of licensed solution are:

  • Out-of-the-box functionality. A ready-to-use solution available on Day 1 with pre-defined set of functions. The product is already developed, and most of the aspects are already thought through (APIs already defined, general architecture is designed, there are integrations available out of the box, the approach for PCI audit is already defined, and high-availability deployment configurations are already provided). Beside that, licensed offering, usually, comes from a software company which provides professional services, including customized development. Consequently, you don’t need an internal development team, while you still benefit from the contributions that are made by other people because of the overall development of the product
  • Availability of development resources. Under licensed solution your own development team can concentrate on your core product, while payment processing related works can be outsourced.
  • Fixed initial cost. The initial cost is not only fixed, but also, generally, lower, than the cost of building equivalent functionality in-house.
  • Benefit of collective contribution. The product is based on feedback from multiple companies using the solution, therefore, if some feature becomes popular, it might get implemented in the product without the explicit investment of the licensee (paid by someone else)

The disadvantages of a licensed solution are:

  • Reliance on a “third party”. Choosing a third-party product you assume the software providers to be there for you when you need them. If the product is sunset, you are no longer getting any product updates or might not even be able to use the product
  • Excessive feature set. The product might come with numerous features that are not necessarily needed, and, because of that, it might be difficult to use
  • Inability to leave the know-how in-house. Like in case of a hosted solution, if you have something highly specialized “for yourself”, you’re obliged to share it with the external development team (licensor)
  • Potential inconsistency with the business model used. Some features might be conceptually incompatible with the current business model your company is using, and you are not necessarily in the position to change them

Conclusion

For those, whose budgets are limited, hosted solution is a preferable option. Those, who already use a hosted solution, may consider the option of switching to a licensed one, but in this case they need to choose from among commercial open-source products, as these reduce some risks, because the source code is available for purchase.

Payment Gateway Solutions

In this article we are going to address several ways of implementation of payment gateway solutions available to merchants and payment service providers who process credit card and ACH transactions. As mentioned in the previous article, payment gateway solutions constitute one of the options a merchant can use for integration with a payment processor (payment service provider).

There are several specific payment gateway solutions available to merchants today.

Licensed payment gateway solution

A merchant licenses a gateway in binary form (nothing can be changed in the software code), or it licenses its source code (enhancements can be made if necessary). Licensed product is installed in the merchant’s own PCI-compliant environment.

Advantages:

  • full control of the whole payment gateway infrastructure
  • no per-transaction costs
  • out-of-the-box integrations with numerous payment processors and banks
  • licensed payment gateway environment is exclusively adapted to one merchant’s preferences

Disadvantages:

  • significant upfront licensing cost
  • need for PCI-compliant environment
  • ongoing hosting and maintenance costs

Generally, a licensed payment gateway solution is recommended for enterprise merchants and payment service providers that have an existing PCI-compliant environment as well as high transaction volumes, and require full control of their payment management process.

Hosted payment gateway solution

A merchant uses a gateway which is hosted by a third party.

Advantages:

  • no upfront license cost
  • no need for PCI-compliant environment
  • no ongoing maintenance and infrastructure costs

Disadvantages:

  • ongoing per-transaction per-merchant costs
  • low degree of control over the hosted environment in terms of downtime
  • shared environment might experience performance issues when multiple merchants are processing high transaction volumes simultaneously

While licensed option is a great solution for enterprise merchants, majority of merchants, especially smaller ones, tend to prefer the hosted payment gateway solution.

There are several common ways in which hosted payment gateway services are priced.

Hosted payment gateway pricing

Any hosted payment gateway solution involves various fees. If a merchant licenses a gateway, there is an upfront fee, but no subsequent fees, while hosted payment gateway solutions involves one of the two common pricing structures: volume-based pricing or subscription-based pricing.

Volume-based pricing involves per-transaction or per-MID fees (or both), which are charged for each transaction processed or for each MID issued to a merchant. The advantage of this approach is that if a merchant doesn’t process any transactions, it, generally, doesn’t pay anything.

Subscription-based pricing involves a fixed license fee (which is paid monthly) and a certain transaction cap. There is usually an extra cost associated with transactions processed over pre-defined caps. While the fee has to be paid both when transactions are processed and when they are not, if there is a large volume that a merchant regularly processes, the cost of each transaction is much lower than the one under per-transaction pricing model. Consequently, the approach is recommended to merchants who have certain transaction volumes processed on a regular basis.

Beside the above-mentioned advantage, subscription-based pricing, usually, gives large-size merchants access to some additional services (such as customized software development), which can be either included in the license subscription, or paid as an additional subscription. This provides access to trained development personnel capable of implementing additional features for a merchant or a payment service provider within the gateway on demand.

Conclusion

If a merchant chooses payment gateway as a preferable integration option, it must consider all advantages and disadvantages of each available payment gateway solution, keeping in mind processing volumes, specific needs and potential implementation costs.