Considerations when choosing a gateway integration
There are a lot of payment gateways out there, and choosing the right payment solution can be overwhelming. Especially when you consider that there is no single right answer for every business. Diﬀerent developers do not need the same features, so for comparison, here's a developer's guide for payment gateway integration.
Cost per payment transaction
For most merchants, the cost is always an issue. A diﬀerence of 0.2% in an average cost per transaction may not sound like much, but for a small business with five million dollars in annual receipts, this represents $10K of lost profits.
Gateways often publish what is referred to as “discount rates” – for example, $2.9% plus a fixed cost per transaction with a tiered discount schedule as their volume grows. Larger payment providers may oﬀer “interchange plus” schemes where merchants pay actual interchange fees and assessments plus an additional fixed fee for processing services.
These types of processing agreements may be subject to additional fees as well. While interchange plus fees can be more complex, larger merchants often prefer them because they provide visibility to the component costs of each transaction. Understanding all the details of the fee structure including potential extra costs related to refunds, chargebacks, and miscellaneous fees is important regardless of the payment solution you select.
Percentage of transactions that complete successfully
A consideration often overlooked is the percentage of Authorizations and Captures that complete successfully on a gateway. This is arguably even more important than minor diﬀerences in the cost per transaction because failed authorizations can translate directly to lost business and a reduction of top-line revenue.
This is an area where the gateways oﬀered by larger payment processors often have a significant edge over third-party gateways. Tier-one eCommerce gateways have success rates for completed transactions in the range of 95%, whereas better-known brand name gateways often fare poorly with success rates in the 80% range.¹
This critical conversion consideration is important for most merchants, so developers and ISVs should consider this carefully as well when choosing a gateway.
1. The Payment Gateways Report – August 2016 – Evan Bakker, BI Intelligence
Type of bank account required
Another consideration for any payment gateway integration is the type of bank account required for use with the payment gateway. Most gateways will require that the merchant have a merchant bank account and their own Merchant ID (MID). Other gateways essentially act as aggregators, collecting payments themselves and then distributing them to a merchant’s bank account periodically or as requested using ACH transfers.
This second model allows smaller merchants to use a regular bank account and get up and running quickly avoiding the need to have a MID and the fees involved with a merchant account.
PayPal and Stripe are examples of payment gateways that allow for this. While this is an option, merchants doing a reasonable volume of sales, needing fast settlement will generally be better served by having a proper merchant account.
Support for card present/point of sale applications
Many popular payment gateways are built specifically for eCommerce transactions. This is logical, since most businesses adding an online storefront already have established point-of-sale solutions, and eCommerce providers may not need one.
As the lines blur between traditional retail and online commerce, however, it is useful to have a single payment infrastructure for both online and in-store payments. Not only does aggregating volume help reduce rates, this can be useful when oﬀering capabilities like order online, pick up in-store, order-ahead, in-store refunds for online purchases, and other capabilities that consumers increasingly demand.
Some gateways oﬀer features required for point of sale payments such as batch processing, lane management, support for various terminal devices (card readers, EMV, pin pads etc.), and vertical application extensions for auto rental, lodging, healthcare and other industries. For merchants that hope to use a single payment solution for both in-store and online channels, support for card present features can be important criteria when selecting a gateway.
Ease of integration and maintenance
For some developers or ISVs, ease of integration can be an important consideration. Some application gateways are developer friendly oﬀering hosted payment pages or easy-to-use SDKs implemented in multiple programming languages. Some gateways even oﬀer SDKs targeting specific mobile platforms like iOS or Android supporting use-cases like in-app or mobile web wallet purchases.
Other payment gateways don’t oﬀer SDKs but provide an interface specification instead (usually accessed via a REST or SOAP / XML POST API) where client applications send and receive payment transactions that they encode themselves in XML or JSON formats.
There are pros and cons to each solution. Some developers will prefer an SDK, but others view SDKs as problematic since they introduce a dependency on their code that can complicate the release management process. These developers would prefer to code directly to a specification where they have full control, even if it means more coding eﬀort.
There is no right or wrong answer, but understanding the nature of the developer interface is also an important consideration in choosing a gateway.
Throughput & performance
Another factor in selecting a gateway is performance. Gateways often pass payment data through multiple providers, and each additional “hop” introduces latency and increases opportunities for errors or outages. Payment approval times can range from sub-second response times to several seconds or even tens of seconds depending on the gateway directly aﬀecting the user experience.
Generally, the closer the gateway is to a payment processor, the better the performance and reliability.
Security, encryption and PCI scope
Gateways may also provide a separate token in response to a payment transaction that can be safely stored in the merchant’s database to facilitate “card on file” functionality so that consumers don’t need to rekey their card for subsequent purchases.
In selecting a gateway, it is important to understand features related to encryption and tokenization and avoid solutions that put the payment application in PCI scope. The same is true for gateways supporting card present solutions as well. Ideally, the gateway should facilitate secure processing, using point-to-point encryption for any point of entry, including EMV, swiped, tapped or keyed transactions eliminating the applications need to store, handle or transmit card data.
The breadth of payment methods accepted – An important strategy for maximizing conversions is oﬀering multiple payment methods. Ideally, a gateway should support payments for all major credit and debit cards.
Developers should also consider capabilities related to other popular payment methods like PayPal, MasterPass or Visa Checkout. Mobile wallet based payments are expected to increase in popularity in the coming years (Apple Pay, Android Pay, and others) as consumers increasingly prefer “one touch” checkout for faster speed of service both instore and online.
Breadth of payment processors supported
For ISVs, it can be advantageous to support multiple payment processors. This is often an argument for coding to a third-party gateway, for this reason alone. Some gateways have an established relationship with a single payment processor (e.g. Stripe) whereas other gateways support multiple processors (e.g. Vantiv’s Express Gateway).
There is no right or wrong answer here either, but before selecting a gateway, it is important to understand how this might constrain your merchant’s choices in terms of payment processors and banking services.
For online merchants selling internationally, multi-currency support is important as well. Multi-currency support should not be confused with accepting international cards. For example, a US domiciled merchant may sell goods or services to a Canadian resident where the amounts are presented and paid in US dollars, so multi-currency support is not strictly necessary.
Organizations selling internationally will see value in gateway solutions that allow customers to pay in their home currency however as this will increase conversions and sales. Consumers prefer to pay in their home currency for a variety of reasons including concerns about noncompetitive currency exchange rates that may be levied by banks or credit card companies.
For merchants and ISVs, selecting the right payment gateway is an important decision. Diﬀerent gateways have diﬀerent strengths and weaknesses, and the right solution will depend on your unique needs and the merchants and customers that you serve.