Rethinking the payments stack: Benefits of multiple payment gateways

Whether you’re building or optimizing your payment stack, now is the time to think about a multiple-payment gateway strategy. 

Over the last few years, it's become increasingly popular to add additional payment providers or gateways. These advantages, like optimizing costs and driving revenue, are well-known to those who have done it before, but knowing where to start can be overwhelming for the uninitiated. To help, we've outlined some core concepts, benefits, challenges, and real-life examples of a multi-payment gateway strategy.  

What is a multi-payment gateway strategy, and why use it?

If you're like most modern companies, your early goal was to get to market fast. So you likely selected a single payment service provider (PSP) or gateways, like Stripe or Adyen, to accept payments. These PSPs package the necessary tools, UI components, and acquire relationships with banks, like JP Morgan or Wells Fargo, to accept and process payments.

A multi-payment provider or gateway strategy simply refers to having one or more PSPs. Packaging or configuring to maximize the value of this strategy is often called payment optimization.

Before we go further…

Understanding payments can be tricky. There are a lot of terms out there that are similar to or slightly different than their counterparts. For this blog (understanding the high-level benefits of using multiple payment gateways), we’ll collectively refer to having more than one payment gateway, processor, and/or provider, as a multi-payment gateway strategy.

Who should set up multiple payment gateways?

The value of using multiple payment gateways depends on the context of your business. 
For example, if you’re selling 5 knitted dog sweaters per month, having two payment gateways doesn’t make much sense. If you operate a high-risk business, like a collectibles trading site, or process thousands of transactions per month, it might make sense to have a backup processor or take advantage of least-cost routing (more on both of these in a bit).

To help, we asked a few experts what questions might help others determine if a multi-gateway strategy is right for them:

• Am I in a high-risk industry? If the nature of your business poses even a marginal chance of being shut off by your payments gateway, then implementing a multi-payment gateway strategy should be a priority.

• What does my payment activity look like? Analyzing your transaction volumes, average purchase price, customer purchase frequency, current transaction costs, decline rates, and margins against the easier-to-measure benefits, like savings from least cost routing or revenue from improved authorization rates. Doing this also decouples the fuzzier or less apparent benefits of a multi-gateway strategy, like future optionality so that it can be discussed more objectively.

• Do you offer recurring or subscription-based payments? If your business relies heavily on revenue from subscription or recurring payments, you know declines hit you harder than most. Some claim that as has as 48% of cancellations stem from failed payments—with “false declines”, or legitimate transactions that were deemed fraudulent, making up anywhere between 30% to 65% of those payments. Once declined, the success rate of a customer adding back a card is low—like 5% according to some studies.

• Here is where retry logic, which allows you to reprocess the card using an alternative gateway, becomes especially important. More on this in a bit.

• What’s the impact on my business if my gateway goes down? Redundancy with gateways can maintain and protect income during downtimes. However, if you’re processing time-sensitive payments or rely heavily on impulse buys, you may want to consider having a backup PSP.

• How critical is friction at checkout? Optimizing the payment experience increases conversion. That may mean adding alternative payments, like real-time payments, or features, like card updating services, that your existing gateway doesn’t offer.

• Do you have buyers and suppliers or a unique payment flow? Today’s most popular PSPs designed their systems to help customers accept or issue cards without creating significant PCI DSS burdens. To do this, they used tokenization and generated PSP-specific tokens that their customers could store and use without creating additional PCI scope. Unfortunately, this poses significant challenges to SaaS, marketplace, and embedded platforms that may need or want to share cardholder details with other third parties, like other gateways, service providers, or partners. If your PSP prevents you from differentiating your core offering, you need to rethink your payment stack.

Benefits of adding multiple payment gateways

Let’s take a closer look at the benefits of multi-payment processing through the lens of cost savings and revenue drivers.

How does having multiple payment gateways reduce costs?

• Improve negotiations: The ability to move transaction volumes from one gateway to another, gives you a stronger position to negotiate pricing with different providers.

• Lower transaction costs: Least-cost routing, or the ability to programmatically route payments based on multiple factors (e.g., location, network, card type), is finally starting to become a normal thing. It’s fairly low-risk to start small with some in-house logic targeting several obvious factors or use the emerging tools out there today (e.g., AI or machine learning). High transaction volumes help the ROI, too.

• Decrease support costs: As you’ll learn in the next section, multiple payment gateways can improve authorization rates, payment experiences, and uptime. This can reduce the overhead associated with traditional support problems and improve customer retention.

How do Multiple Payment Gateways help drive revenue?

• Improve authorization rates: There are various factors and reasons payments fail. While some are legitimate, estimates as high as 66% suggest they are not. Double-checking a failed transaction by rerouting the payment to another gateway can net you the sale and improve customer satisfaction. 

  Improve conversion: By using multiple payment gateways, you can offer more payment options to your customers, like Buy Now Pay Later, QR codes, and more. This can make it easier for customers to make purchases, increasing your sales and revenue.

• Differentiate your product: Innovative partnerships, services, and features rarely conform to existing systems. However, unlike your systems, you can’t modify your payment processor capabilities. As discussed, PSP-specific tokens make it impossible to use or share your customers’ cardholder data with other third parties without having a robust PCI-compliant cardholder environment yourself. This vendor lock-in can become problematic when, say, adding new partners with their own payment gateways. A multi-payment gateway strategy, when done right, ensures your PSP isn’t preventing you from differentiating your products, services, or partnerships.

• Provides a contingency path: As mentioned earlier, using multiple payment processors can help ensure your business does not lose revenue due to payment processing issues. If one processor experiences technical issues, you can still accept payments through another processor.

• Reduce cart abandonment: Increase transaction speed by measuring and routing transactions based on latency across gateways.

• Expand to new markets: Some gateways don’t service various locations. Onboard ones that do.

Challenges to standing up multi-payment gateway implementation

While a number of different service providers have made it simpler and more cost-effective to stand up multiple gateways, it's not without effort. 

• Getting a compliant cardholder data environment: To unlock the benefits above, however, you’ll need the ability to route cardholder data to multiple providers. As we discussed, PSP-specific tokens that help you avoid PCI compliance scope are unique to you and your PSP, so providing your PSP’s token to a third party does nothing. You have two options to use your cardholder data independently from your existing PSP.

1) Build and maintain a cardholder data environment (CDE): Depending on your size, building and maintaining your PCI DSS infrastructure and the program could eliminate the cost savings and distract you from your core product offering.

2) Use a vendor-agnostic service provider: Platforms, like Basis Theory, have emerged to provide the necessary infrastructure, services, and tools needed to collect, secure, transform, and route payment information with any endpoint while avoiding the costs to build and maintain a compliant in-house cardholder data environment.

• Managing the complexity: Using multiple payment gateways requires additional card orchestration logic to reap benefits. However, starting small and writing logic that optimizes on known factors or scenarios can provide immediate ROI without tying you into a contract with a payments orchestration provider. Many vendor-agnostic platforms provide environments for hosting this logic, card analytic capabilities needed to improve their algorithms, and an API to manage their implementation as code. Using companies like Proper or Fragment can also help on the reconciliation end. 

Examples: Multi-payment processing use cases

Melio, a payment platform for small businesses, quickly outgrew its PSP on its way to unicorn status. It needed better rates and redundancy. By taking ownership of their cardholder data with Basis Theory, they avoided 99% of the effort required to build and maintain their own cardholder data environment (CDE). This independence gave Melio the leverage to negotiate better rates with their new and existing PSPs.

Branch, an insurance carrier and marketplace, provides third-party policies when gaps in its coverage exist. Unfortunately, Branch’s PSP couldn’t share a customer’s credit or debit card information with third parties. Instead of a single checkout experience, customers would pay Branch (for its policies) and then phone the third-party’s call center to complete the payment its part of the payment. These “out-of-band” experiences hurt conversion and limit revenue from partners.

Like Melio, Branch modified its payment stack to decouple card storage from its PSP.  By collecting, encrypting, and storing the payment information within our PCI-compliant environment, Branch could use its Basis Theory token and proxy services to initiate two transactions: one with its PSP and one with its third-party insurance partner for downstream processing. In doing so, they could consolidate the payment experience into one checkout flow and improve conversion.

Final thoughts on multiple payment gateways

Regarding your payment stack, flexibility provides cost-savings and revenue-driving opportunities—today and tomorrow. Decoupling your cardholder data from your PSP gives you independence and control over your payments and cardholder data. If you’re interested in learning more for a fraction of the risk, try building a quick POC in less time than it takes to complete your daily stand-up with our PCI Blueprint or chat with one of our experts.