From this article you will learn:
- why platforms like Stripe or Square are so popular;
- why merchants are starting to look for alternative payment solutions as they grow;
- what alternative payment strategies are available;
- when it makes sense to switch from Stripe or Square to an alternative solution.
Introduction: can Stripe or Square solve all the problems?
Recently, large payment management platforms such as Stripe or Square have gained popularity. According to experts, the key to success of these platforms lies in diversification of their offerings and revenue streams.
For example, Square achieved significant results through implementation of card-present solutions in retail space, as well as both physical and mobile POS systems. Beside advanced card readers, Square created a series of technological innovations, including SquareStand and SquareRegister (targeted at both merchants and cardholders), as well as services-based products like Square Payroll (for staff and salary management) and Square Capital (for providing loans to merchants).
Stripe, in its turn, has grown to over 100,000 merchants, thanks to its initial partnerships with highly profiled startups, such as Facebook, InstaCart, and Lyft. Besides that, Stripe focused on subscription-based offering that was primarily targeted at recurring billing businesses. Stripe Subscriptions solution is the key Stipe product for recurring billing. Moreover, Stripe provides non-US merchants with an opportunity to launch their business in the US. Thus, the company strives to cover the interests of as broad segments of users as possible.
Many startup merchants feel totally comfortable partnering with Stripe or Square at the initial phases of their operations. However, as they grow, they sometimes face certain problems resulting from several key reasons:
- Merchants are always looking for ways to reduce merchant services costs;
- Even the most advanced platforms are not devoid of certain technical limitations. If your current platform provider does not have some of the functions you need, then it will be reluctant to add the necessary logic just for you (unless your company alone provides a significant revenue source because of high transaction volumes);
- Some merchant categories and codes (MCC) are simply not supported by the platform, although they have to be serviced;
- At some point a merchant might want to implement a payment facilitator model. For this purpose partnership with Stripe or Square might not be the most beneficial solution.
Alternative strategies
Due to relatively high processing costs, limited MCC support, or lack of some custom logic merchants start wondering whether they need to look for alternative payment solutions. In such a situation a merchant can consider one of the three conceptual options:
- Finding an alternative service provider that is capable of satisfying all the technological requirements of the merchant at reasonable cost;
- Building a payment solution (incorporating all the necessary features and costing less than partnership with Stripe or Square) from scratch using the efforts of an in-house or third-party development team;
- Using some flavor of a white-label payment gateway solution under the merchant’s own brand.
If you are partnering with Stripe or Square, it is, usually, possible to find an alternative service provider, however, as it is, most probably, going to be the direct competitor of these companies, the price charged by this alternative provider will not be much lower than what you are currently paying. Moreover, it will be difficult to find an offering that has significant technical advantages over Stripe or Square, as these companies are leaders of the market, thanks to the listed technological innovations.
If your primary purpose is to reduce the cost of processing, then the optimal strategy is to minimize the number of middlemen between your business and the acquirer/processor. In most cases this can be achieved through direct integrations with processors and acquirers, which call for implementation of some white-label payment gateway solutions (or for development of your own customized gateway product from scratch).
Building a large payment gateway product of your own from scratch, usually, requires time and efforts that even a large-size merchant cannot always afford. So, usage of a white-label product often seems more suitable. Some platforms, such as UniPay Gateway, provide white-label solutions coming in different flavors (from hosted solution to dedicated gateway instance to licensed open-source payment gateway software).
Do Stripe or Square partnerships seem too costly?
Many merchants claim that large platforms such as Stripe or Square charge too much for merchant and processing services. They erroneously assume that if they are paying, say, 2.9% for processing, then switching to a payment gateway solution of their own will allow them to eliminate this fee completely. However, just like we explain in our recent article, if you are not paying 2.9% to the processor, you are still paying around 1.9% to card networks (Visa, MC). So, your actual savings will amount to 1%. Plus, you will have to pay for servers and gateway product maintenance. So, transition is a reasonable step only if this 1% exceeds $150,000-200,000 annually in absolute values (this is the approximate amount you will have to pay for gateway maintenance, PCI audit, development, support etc).
Conclusion
If your processing volume is large enough and you have set your mind on switching to a new flexible and robust alternative to your current payment solution like Stripe or Square, then some modern platforms, such as UniPay Gateway do allow you to get more control over the process, customize your product as required, and benefit from new lucrative opportunities (while you do not have to develop a payment solution from scratch).
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