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.

From ISO to Payment Facilitator

Introduction

Recently the term “payment facilitator” has gained popularity. The role of payment facilitators at the merchant services market has grown significantly. The concept of a payment facilitator is actively promoted in the merchant services industry. Consequently, more and more companies consider the idea of assuming the role of payment facilitators.

Problem

A business, selling merchant accounts, is currently functioning as ISO, but wants to become a payment facilitator.

Context

An ISO, generally, relies on other entities in many aspects of its activity. If a business needs to get a merchant account (purchase it from an ISO), the ISO needs to address some other entity (usually, the payment processor) to handle this issue.
Traditionally, the model functioned as follows. ISOs and software companies, which performed the role of ISOs for their clients, referred their clients to the processors and helped sell the accounts, relying on external gateway. Underwriting and funding was handled by the processors. With time, as the number of clients increased, they realized that the model was not very effective. As a result, payment card associations suggested the concept of payment facilitators, which provided these new entities with greater control over the processes of MID issuing, merchant funding etc.
ISOs have various reasons for becoming payment facilitators.
As we’ve mentioned in one of our articles, a payment facilitator actively participates in sub-merchant funding, and each of its sub-merchants is funded under a separate MID. In view of these functions, to become a payment facilitator, an entity needs to perform several important steps and answer some critical questions.

Strategy

Finding a processing partner

If you are an ISO, you already have a certain number of merchant accounts to support.

  • Are you going to become a payment facilitator with your current payment processor, or find a new processing partner? In either case, as mentioned in the respective article, you will have to sign a separate agreement with your processing partner, and go through the payment facilitator underwriting process.
  • If you are switching to a new payment processor, what is the plan for migration of your merchants? Will all the existing merchants from your portfolio be able to go through underwriting process with the new payment processor? If not, what is the “plan B” for those merchants, which are unable to do that? Some tips on migration to a new processor can be found here.

Pricing strategy and underwriting

If you are going to change our processing partner, you need to carefully study the following two issues:

  • What are the underwriting requirements of the given processor? Which documents and guarantees are required? What are the requirements for merchant services reserves? Remember, that before being able to underwrite your sub-merchants, you need to go through underwriting procedure with the payment processor yourself.
  • What transaction pricing model is offered by your potential processing partner? More information on transaction pricing models can be found in our previous articles, such as this one.

Technical aspects

You need to address several technical aspects. Mostly, these concern the peculiarities of new integration(s).

  • What types of payment cards and transactions do you need to support?
  • How will the new merchants be set up? How will the new MIDs be issued? What is the merchant underwriting mechanism you are going to use? If merchant information changes over time, how will those changes be delivered? In other words, what is the strategy for merchant on-boarding and provisioning?
  • Who will implement KYC (know your customer) logic, verification procedures? Is it going to be the processor or your own development team?
  • How will sub-merchant funding, remittance, statement generation, and reporting be organized?
  • Do you need card-present solutions (which, naturally, call for usage of physical payment terminals)? Which terminals are you going to use? Which processor(s) is(are) going to support particular solutions (card-present and card-not-present, or some others)? If several processors are going to be involved, then merchant on-boarding, funding, and chargeback handling procedures have to be worked out for each of the processors. If you need to process only card-not-present transactions, do you need to handle recurring payments and batch transaction processing? How are you going to handle these tasks? What is your solution for merchant information updating (account updater functionality)?
  • Are you going to handle most of the abovementioned processes manually? If yes, you need to develop training materials for your personnel. Otherwise (if the processes are going to be automated), you need to launch the respective development projects in order to implement the necessary logic.

PCI compliance and fraud protection

What is your status in terms of PCI compliance? What fraud protection mechanisms are available? In order to ensure the security of all the processes, you need to go through appropriate PCI audit as a prospective payment facilitator, and implement the best fraud protection tools you can find.

Conclusion

Becoming a payment facilitator, you are getting more control of merchant funding and underwriting processes, but you are also assuming greater risks and responsibilities. Your transition strategy must include all the aspects, needed to ensure smooth handling of the whole life-cycle of your sub-merchants.

Dealing With Multiple International Payment Platforms

Introduction

Present-day globalization tendencies push more and more businesses to process payments in multiple geographical zones.

Particularly, such companies include businesses, which start offering their products online internationally, and franchises, which enter international markets.

The purpose of this article is to outline the problems faced by these companies and try to provide structured step-by-step strategy that they could follow.

Problem

Let us say, there is a company, which wants to solve the problem of multi-currency and international transaction processing for itself or for its clients.

Context

The task of entering an international market can be addressed at one of the three “complexity levels”.

  • Level 1: A company wants to process its own transactions (product sales) in different countries.
  • Level 2: A franchisor wants to operate in different countries, but in each country at most one processing partner is sufficient (a franchisor can impose all franchisees to use a single processor).
  • Level 3: A software vendor company wants to service many clients in different geographic zones using several processing options (support more than one platform or acquiring bank in each country).

Strategy in brief

The crucial issues you will definitely have to deal with (if you want to expand your operations to multiple geographical locations) include:

  • Finding a solution for operations with several currencies
  • Prioritization of regions
  • Prioritization of typical transaction types handled by your payment ecosystem
  • Organization of underwriting and on-boarding processes in new geographies
    • Strategy in detail

      In order to organize the process properly, first of all, you have to study the overall situation and then – answer some fundamental questions.

      • Is it going to be possible to settle transactions in one single currency, or settlement currency must always be the same as authorization currency? If a company wants to charge its customers in a local currency and settle the funds from international sales in a single bank account, it can partner with a single acquirer, that supports dynamic currency conversion. If it plans to settle transactions in the local currency, then a local relationship with a specific bank will be required. In the second case a more complicated payment ecosystem will have to be built.
      • What are the high-priority and low-priority regions? What the actual transaction volume is going to be? Evaluation of transaction volumes is necessary for pricing negotiations and related issues. Establishment of the relationship with a payment processor and implementation of the required technical integration is never a simple process. It takes plenty of time, and it becomes even more difficult at the international scale, especially when several projects are under way. Most likely, you will have to proceed in the sequential manner, which is why it is important to prioritize.
      • What are the transaction types you need to process? Are you going to deal only with online card-not-present transactions? Is card-present transaction support required? Will you need EMV support and respective payment terminals? Usually, it is much easier to find a card-not-present solution, because various local regulations exist for use of the chip cards in a particular region. In some cases region-specific specifications are necessary for you to be able to accept cards in the retail environment. The additional challenge is that in some countries it is not possible to certify your existing EMV solution, and you may be required to use whatever is available on the local market. Some of these available solutions might not fit into your existing payment ecosystem.
      • Which banks will handle the underwriting process, and how merchant accounts are going to be issued? How are you going to integrate with these banks? What is the specific connection mechanism? These questions are extremely relevant for many countries. However, in some countries (say, in North America) there are payment gateways, which work with several processors or acquiring banks, and are able to facilitate your relationship with any one of them. On the international arena, the options might be more limited, because some regions have only few acquiring banks, and some gateways might be limited to work with only specific acquiring partners.

      As we can see, all business details (including corruption as well as local regulations and legislative barriers, which might result in cost increases) must be discussed and considered in advance.

      You must find the gateway, providing the best solution in each specific country in view of the listed questions.

      Finally, you will get a list of countries, banks and payment platforms you will have to partner with. After that you will have to analyze the available gateways and check, which of them have either all or most of the necessary bank connections.

      Example

      Let us consider a case when some “optimal” solution is found. Say, there is a gateway, which supports 3 of the 5 necessary bank connections, but is unable to add the missing 2 and all the subsequent ones (or the payment gateway provider is reluctant, because the cost of new connections is too high). This is just the case when you have to consider creating your own payment ecosystem (for some companies this might be the overall goal).

      Next you have to define, in which countries you will have to start from scratch, and in which countries you have some clients (merchants) already using the system. Keep in mind, that in any case if you are going to expand your operations, a strategy will be needed for on-boarding of new merchants.

      Existing clients

      Example

      A franchising company is a vendor of software for fitness centers. It doesn’t have any integrated solutions within the country. Franchisees have to establish a relationship and purchase standalone terminals from it. Every transaction, made at POS, is processed using the standalone terminal, and then – keyed into the main system of record, provided by the franchisor. The franchisor decides that the solution based on usage of standalone terminals is a bit complicated and it is better to offer integrated payment processing functionality. In this case the franchisor has to migrate the already existing merchant accounts.

      In such a situation, you have to analyze, how to migrate these clients from their existing solutions to the company’s main product. Beside that, you need a strategy for the new underwriting process (get new merchant accounts for the already existing merchants and check if processing costs are going to increase). Finally, you have to define, which technical solutions are needed (in terms of additional integrations) in order to allow merchants to be able to send transactions for processing.

      New clients

      If you have no clients (yet) in some region, you have to work out operations for on-boarding process in each particular country.

      Conclusion

      If you are planning to enter foreign markets, handle new currencies, and process transactions internationally, you need to set up priorities and develop a step-by-step expansion strategy.