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.
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