Gateway diversity is part of a company’s overall payments ecosystem and integral to the general array of options to manage risk, to ensure transaction success rate and to deal with large transaction volumes. Or at least, it should be.
As the world is getting increasingly smaller behind our screens, merchants need to bring their business across borders. In this sense, payments gateway performance can vary enormously across different geographies. Furthermore, card-not-present transactions are becoming more and more common. Merchants need additional flexibility and other means to accept payments – each time a transaction is declined, the company risks losing the customer’s business, potentially also losing out on the future lifetime value of the customer.
The premise of this article and a principle that has been proven successful for Spreedly customers for quite a while now is that payment gateway diversity using a Payments Orchestration strategy, can be an obvious solution for a multitude of issues that merchants are facing, while actually reducing technical hassle. Moreover, in light of the last couple of months, making your customers a priority as a merchant, can prove to be vital when dealing with unforeseen fluctuations in consumer behaviour and transaction volume, known spikes like an “on sale” or holiday sales boost, higher fraud risk and drops in revenue.
A question of reach, a question of safety
Historically, merchants might have worked with one gateway for all their payments, but these days, this may or may not be an entirely good decision. Working with only one gateway puts merchants at a disadvantage in terms of flexibility and reliance on a gateway’s technology. Moreover, their servers can go down, there can be power outages, natural disasters – all these with the high potential of costing the business a lot of money. In this case, additional payment gateways ensure that any unpredictable changes will not prevent transaction success.
Furthermore, many payment gateways are configured to route their transactions to a bank in one card region. This is a system that allows for a smooth settlement within the borders of one country. However, when trying to expand abroad – which is a decision made by a wave of retailers who have been increasingly moving their business online in the last couple of months – a single gateway can become a challenge. Adding the hurdle of interchange fees to the mix, it becomes apparent that a key to expand cross-border with ease is to localize payments in the expansion region by adding an additional gateway to the merchant’s payments orchestration layer. This also enables merchants to increase success rates by working with the right mix of payment services.
As a side note, payment gateway diversity allows for experimentation. Merchants will often add additional gateways that they may not have worked with before in order to test out and see whether or not they can add additional value. It’s a nice way for gateways to add additional merchants as their customers. That's because in a payments orchestration environment gateways and other payment services, like fraud tools, can be introduced to a merchant for evaluation with ease.
Research and numbers above all
Spreedly analyzed the long-term impact of adding another gateway for merchants in the span of 3.5 years of data from January 2017 to mid-June 2020. Many factors influence a company's transaction success rate including the mix of debit and credit cards so the examples here will not apply to all companies. The count of gateways being used is based on actual transactions and not the number of gateways a company had retained. Lastly, within the research, for businesses highly impacted by the COVID-19 pandemic, pre-pandemic numbers were used.
Within the confines of the above parameters, one of the main goals of the research conducted by Spreedly was the desire to quantify the impact of the transactions success rates, especially for companies that have to deal with large transaction volumes. What they found confirmed the premise that adding additional gateways to a merchant’s payments infrastructure can significantly reduce the risk of card-not-present transactions, and other associated hurdles in the process that can visibly impact customer experience. The research outlined four examples, as follows:
Company B increased their success rate by 8%, by adding additional gateways to their payments orchestration layer. This helped gain them an extra USD 354,000/week, in terms of those transactions that could have been lost.
Company C made an additional USD 50,000/week by adding more gateways to their orchestration layer, and this increased their success rate from 88% to 92%.
Company D was a little bit different. This company started out with one gateway, and then they added a second one. This took their success rates from 78% to 90%. They later dropped the first gateway, because the second one was just so much more successful. In this specific case, Spreedly helped the company to optimize their payments infrastructure.
Every company is indeed different, they are all going to have specific results and gateway diversity does depend on several factors. Which is why the analysis included these high volume, interesting case-studies.
Success rates will tend to vary a lot by country or by gateway, but some specific overall trends can be recognised, including that gateway diversity tends to have much higher success rates in Europe compared to other regions, and the research observed lower success rates in Latin America. Generally, credit cards were more successful than debit cards, andthe research did see different results between different card brands as well.
The research also observed cross-industry lower rates in regions such as Latin America, which makes it even more impactful for merchants to move to payments orchestration, because then their ability to improve those success rates becomes even more dramatic.
Risk, regulatory compliance, and the perks of being PCI compliant
The transaction experience in ecommerce has to be, of course, seamless, safe, and PCI compliant. As a core component of any credit card company’s security protocol, it is normal for PCI compliance to come up when thinking about branching out in terms of payment gateway. One of the primary goals of PCI DSS 4.0 (the last version of the standard said to be released in 2021) is to promote security as a continuous process and add support and flexibility to achieve security. 4.0 is expected to allow organizations to demonstrate compliance in a variety of ways. Spreedly believes payments orchestration will continue to be a sound strategy for reducing scope and limiting ongoing maintenance costs.
In this sense, one of the ways in which organizations like Spreedly can help the payments industry is through their insight into the payments orchestration space. The team plans to continue to refine the data, exploring the most particular means for each type of retailer and geography to use gateway diversity to its advantage.
Final thoughts
About Meredith Tomblin
Meredith has over ten years of experience in analytics and marketing. Prior to Spreedly, she managed reporting and analytics for clients in the financial and telecom industries at Kobie Marketing. Meredith has degrees from Georgia Tech, the University of Alabama, and a masters of advanced analytics from NC State.
About Spreedly
We orchestrate payments for the world’s most innovative businesses. Hundreds of global enterprises and hyper-growth companies grow their digital revenue faster by relying on Spreedly. Our Payments Orchestration Platform secures payments data and optimises nearly USD 14 billion of annual transactions across virtually any payment service and gateway.
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