Rethinking the payments stack: Benefits of multiple payment gateways
Whether you’re building or optimizing your payment stack, there has never been a better time to think about a multiple-payment gateway strategy.
The advantages of going multi-PSP (payment service provider), like improving authorization rates and lowering transaction costs, are well-known to those who have done it before. However, knowing where to start can be overwhelming for the uninitiated. Below are some core concepts, benefits, challenges, and real-life examples of using multiple payment gateways.
What does it mean to use multi-payment gateways, and why do it?
If you're like most modern companies, your earliest goals revolved around getting to market quickly. So, you likely selected a single PSP or gateway, like Stripe or Adyen, to accept payments. These PSPs package tools, UI components, and relationships with banks like JP Morgan or Wells Fargo to accept and process payments.
Using payment gateways means having more than one PSP. Configuring transaction workflows to maximize the value of this strategy is often called payment optimization.
Who should set up multiple payment gateways?
The value of using multiple payment gateways depends on the context of your business.
For example, a merchant selling five knitted dog sweaters per month probably doesn’t need multiple payment gateways. Having multiple payment gateways makes sense if you operate a high-risk business, like a collectibles trading site, and process thousands of transactions each month. Having a backup processor at this scale can take advantage of least-cost routing and payment orchestration strategies.
These questions will help others determine if using multiple payment gateways 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, 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 it can be discussed more objectively.
- Do you offer recurring or subscription-based payments? If your business relies heavily on subscription or recurring payments revenue, you know declines hit hard. Some direct-to-consumer brands claim to lose as much as 20% of its revenue because of failed payments. Once declined, the success rate of a customer adding back a card is low—like 5%, according to some studies, which is why it’s essential to have retry logic!
- 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 payment methods, like real-time payments, or features, like card updating services, that your existing gateway doesn’t offer.
If your PSP prevents you from differentiating your core offering, you must rethink your payment stack.
Benefits of Multiple Payment Gateways
These benefits of multi-payment processing are through the lens of cost savings and revenue drivers.
- 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 becoming commonplace. 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.
- Improve Authorization Rates: There are various factors and reasons payments fail. While some are legitimate, estimates say 42% of Gen X and 56% of baby boomers will find another retailer because of a false decline. Retrying a failed transaction by rerouting the payment to another gateway can net you the sale and prevent customer churn.
- Improve Conversion: Using multiple payment gateways can offer alternative payment methods 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.
- Find Differentiators: Innovative partnerships, services, and features rarely conform to existing systems. However, unlike your systems, you can’t modify your payment processor’s 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 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 Multi-Payment Gateway Implementation
While a number of different service providers have made it simpler and more cost-effective to implement multiple gateways, it's not without effort.
- Hosting 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.
- Build and maintain a cardholder data environment (CDE): Depending on your size, building and maintaining your PCI-DSS infrastructure and the associated efforts could eliminate the cost savings and distract you from your core product offering.
- 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 Operational 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 Gateway 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. 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.
Getting Started with Multiple Payment Gateways
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.
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.
