Multi-Processor Merchants: Why Innovators Are Using Multiple Payment Processors
When we talk about a multi-processor approach, we are not talking about computing systems—although that idea is not far off. As a merchant, multi-processing refers to utilizing two or more payment service providers (PSPs) to process transactions.
As a merchant, accepting and processing payments is the lifeblood of your business. How you do so can significantly impact the trajectory of your business. We’ve found that switching to a multiprocessor payment strategy can have immediate impacts:
- Increase acceptance rates by 10-25%.
- Reduce insult rate by 25%.
- Keep customers from having to re-add card information.
Choosing between a full-service payment service provider (PSP) or a multi-processor routing approach depends on various factors, including convenience, security, cost, flexibility, and more. Which of these factors matters most depends on your business's needs.
Comparing Full-Service PSP to Multi-Payment Processor Routing
A full-service PSP handles all aspects of payment processing, from account setup to transaction authorization, processing, and settlement. These PSPs accelerate time-to-market by providing merchants access to a shared merchant account to do business. The PSP provides everything from embeddable forms to collect cardholder data, to easy access to an often impressive array of payment methods, and a consistent fee structure.
The first and most crucial benefit delivered by any full-service PSP is speed. Without the need to complete the often-onerous task of acquiring a merchant account and building relationships with payment gateways, a business can rapidly open an account and start accepting payments. In most cases, the pricing is either flat or incredibly predictable, which benefits smaller merchants just getting started.
At the same time, full-service PSPs will offer additional value-added services, such as:
- A more comprehensive range of accepted payment methods (cards, digital wallets, etc.) than most freestanding gateways can
- Automatic currency conversion to simplify costs of international transactions
- Reduced security compliance costs and burdens, as the full-service PSP will often collect and store the cardholder data, and provide a token to their customer
- Extensive APIs and SDKs, making it easier to embed their services across device types and platforms
Downsides to a Full-Service Payment Provider
While the clearly articulated and forecastable fee structure offered by all-in-one PSPs is appealing to merchants, it doesn’t necessarily result in an inexpensive solution. The cost of payment processing varies wildly from country to country, from payment method to payment method, and, unsurprisingly, from PSP to PSP.
Underneath the predictable fee structure are some costs your full-service payment processor is cleaning up on.
Beyond cost, merchants also add risk to their business when committing to a single full-service PSP to process all payments. Although the PSP can reduce the burden of regulatory compliance, it also imposes rules and requirements that may not be friendly to all merchants. There are numerous examples of businesses left high and dry because their full-service PSP found them to be too high-risk or not within an industry the PSP wanted to work with.
In addition, while full-service PSPs reduce merchant compliance requirements by collecting and storing cardholder data on their secure servers, the merchant does not have direct access to that information. Should a merchant choose to switch PSPs, it can be nearly impossible to get the full-service provider to share that information, meaning that even the best customers will have to re-enter what they have been using as stored accounts.
Having this type of “lock-in” with a single PSP exposes a merchant to paying higher fees, working within the limitations set by the PSP, and not owning their data.
Why Have a Multi-Payment Processor Strategy
To put it simply, multiple payment processors in your payments stack can increase everything from authorization rates to Net promoter scores and everything in between.
A multi-processor routing approach adds redundancy to your payment workflows when a declined payment occurs. By supporting multiple transaction options and doing payment routing, paired with failovers and retry statuses, improve authorization rates, decrease costs, and remove risk.
A single point of failure in any organization is a risky proposition—and a single payment partner is no different. By using only a large PSP like Stripe or Worldpay, organizations open the door to many single-point-of-failure issues. Building in a backup payment processor brings more redundancy and resilience to your payment flows.
For instance, when a transaction is turned down based on a soft decline, you can quickly shift it to a backup payment processor. Not only does the multi-processor approach keep merchants transacting, but it can also decrease overall fees. Local acquiring connections, transaction retry, and routing logic will lower transaction costs
The reality is that most payment processors are better at some things than others, and they often have wildly divergent pricing schedules. Some processors charge more because they can handle high-risk merchants, and others will charge flat fees in return for a simplified checkout process.
As a result, merchants seeking to optimize their payments and their business operations find that implementing their own payment orchestration strategy is a highlight valuable option. The merchant implements their own intelligent decisioning process to route transactions to be most affordable for the business, and PCI compliant.
Drawbacks to Multi-Processor Routing
While all-in-one PSPs offer simplicity, a multi-processor approach is often more complex due to its flexibility. Implementing smart routing with multiple payment processors can be done through proxy routing with a vaulting provider or in a more drag-and-drop way through a payments orchestration platform (though you’d lose flexibility).
No matter the approach, it’s often more involved than the go-live of a full-service PSP.
Optimizing Merchant Payments
Knowing the advantages and disadvantages of payment partners and their solutions, being able to pick and choose which works best for selecting the right option(s) for your customers can be tricky.
When adding to your payment service provider stack, be sure to consider:
- How this partner operates with your designated merchant category code (MCC) and whether similar merchants transact successfully with them, or not.
- The payment methods they offer and whether they meet your customers’ expectations.
- What makes them unique and a good fit for you, whether they offer fraud prevention, flexibility, performance optimization, global coverage, or the reporting you require.
- Whether the level and quality of support will meet your needs.
- How well does this PSP collaborate with other partners, including rival PSPs, third-party tokenization providers, fraud management tools, etc.?
- What the overlap may be between this partner and any others you may have.
If you’re a merchant looking for the right payment solution, contact us today to chat with one of our payment experts, who can walk you through the available payment options.
