How a programmable payments vault makes money for a merchant
Every scrap of margin matters in business, which means fighting to close every possible transaction, reduce the cost of each sale, and limit any risk that can take a bite out of future earnings. Nowhere is this more evident than in the area of payments, where choosing the right stable of payment partners can mean double-digit improvements in processing fees, and meaningful increases in successful transaction ratios.
Fully automating a merchant payment system can incur risk, though, when cardholder data is held internally, bringing the whole platform into PCI-DSS scope. This is why the advent of the programmable payments vault is revolutionizing the business of payments.
What is a programmable payments vault?
A programmable payments vault provides extensive SDK and API support to empower merchants to build sophisticated decisioning engines and automated payments systems. Programmable payment vaults can open up a universe of possibilities for improving transaction rates, reducing business risk, and limiting processing fees. The payment vault itself is only one part of the puzzle. Redirecting inbound PII data and storing it, while receiving and storing internally a secure token protects customer information.
Programmability opens the door to a vast array of possibilities, including:
- Partnering with multiple payment service providers (PSPs): Some may specialize in high-risk transactions, while others may be located in the same geographic location as a customer cluster, and still others may provide better processing fees for debit cards. Each additional PSP partner to which the programmable payments vault connects offers the opportunity to improve close rates, and reduce processing fees.
- Building bespoke decisioning engines: While commercial payments orchestration platforms may offer to do the intelligent switching on a merchant’s behalf, their algorithms are, almost by definition, based upon the most frequently-used routings. A programmable payments vault puts the merchant in the driver’s seat, allowing it to build algorithms that don’t just choose by BIN or MCC, but can be programmed to do things like balance volume across providers to take advantage of volume discounts.
- Use the vault for other purposes: A programmable payments vault is not limited only to financial information—it can equally be used for storing other sensitive data. Customer account numbers, for instance, could be stored in the vault, and surfaced in customer service systems programmatically, to avoid the risk of hackers acquiring information they could use for a social engineering exploit.
Why do I need a payment vault?
A payments vault typically offers a service to:
- Accept personally identifiable information (PII) on the behalf of merchants.
- Store that information securely, keeping the merchant’s systems out of PCI-DSS scope.
- Provide a token with which the merchant can cause the vault to pass the underlying PII to a destination of the merchant’s choice.
Such a vault is vital to the automation of merchant payment systems because it:
- Provides fully secure PII storage, without the need for the merchant to build out PCI-DSS compliant systems on their own.
- Is unaffiliated with any particular PSP, allowing the merchant to build relationships with a range of different payment providers so they can take advantage of specialists to, for instance, transact high-risk, cross-border, or exotic payment method deals.
Using a single full-service PSP can deliver easily-forecast costs, but locks the merchant into a single provider that holds their customers’ PAN and other cardholder data, and uses automatic gateway switching to its own benefit, rather than to the benefit of the merchant.
Comparing a Programmable Payment Vault to a Payment Orchestration Platform
A payment orchestration platform (POP) is intended to take on the effort of connecting multiple payment providers on behalf of merchants. The merchant’s checkout page is connected by API, and the POP performs a calculation, based upon the data provided (location, transaction size, etc.) to determine the best provider to submit the transaction to. While this can reduce the burden of building a bespoke payments automation system for merchants, it does come with a number of drawbacks in areas like:
- Custom payment processes: For instance, partial refunds can be difficult to program. Similarly, processes with the need for dual-message payments, or where authorization occurs at a non-standard point in the transaction may not fly.
- Regulatory compliance: Certain regulations, like SCA and PDS2, can become challenging, as POPs often are able to integrate with the basic PSP services, but struggle with advanced features.
- PSP support: Necessarily, POPs support the most popular PSP options—which can mean long waits by merchants for emerging services to be supported.
- Fee optimization: Much like PSP, a POP makes its money by charging a stable, consistent fee for its service. While this can be very attractive in the early days of an integration, over time the cost of the service can come to outweigh the cost savings.
Merchants seeking a fully-independent solution that can support any PSP they choose to work with, and allow them to recognize fully the benefits of arbitraging PSP and payment gateway rates, may find the additional work of building their own system in conjunction with a programmable payments vault is quickly repaid in improved success rates and lower fees.
Getting Started with a Programmable Payments Vault
Programmable payments vault providers like Basis Theory can get merchants up and running quickly, even if they opt to take an iterative approach to payment optimization. Moving the storage of PII out of internal systems immediately reduces PCI-DSS scope. Adding a second PSP solidifies the merchant’s confidence in its ability to be able to transact business even when the primary provider suffers an outage, and even rudimentary routing logic (say to push transactions to a PSP in the geographical region where the deal originates) can have meaningful impacts on the cost of processing.
Learn more about how a programmable payments vault works by exploring the Basis Theory’s developer documentation.
