Today, the iPhone is the ultimate mobile shopping device: 69.5% of mobile sales occur on smartphones while 30.5% occur on tablets, and 61.4% of ...
More Than a Messenger
Online payment gateways reinvent themselves as they seek to become more than just data pipes.
Managing Editor, International Research
Topics: 2Checkout.com, Accertify, braintree inc., Butlers, Computop, Demandware, e-payments and security, Fab.com, fraud management, funds transfer, interbank ACH, legal/regulatory, Magento, Mastercard Inc., Merchant e-Solutions Inc., Motorcycle Superstore Inc., online payments, Payment Card Industry Data Security Standard, payment gateways, payment processors, payment vendors, PCI compliance, September 2012, September 2012 Magazine, Visa Inc.
Payment gateways are a little like trendy restaurants. While a hip eatery may offer many varieties of sandwiches, diners likely won't see that word on the menu. Instead they will see colorful words like panini or tartine accompanied by details explaining why the item is so much more than a combination of bread and meat. Similarly, payment gateways often describe themselves in flowery terms as they try to convey the message that they are much more than the payment data pipes they were in the past. And in many cases, they are.
At the most basic level a payment gateway is the software that connects an e-commerce site, mobile app or site to a payment network to process a transaction. In other words, it is the middleman most merchants use to connect to Visa, MasterCard or the interbank ACH funds-transfer system after a consumer enters her payment information and hits Submit Order. Payment processors then take the transaction data, feed it through the payment networks to the consumer's bank or credit card issuer, get approval for the purchase, and carry out a series of other steps that lead to the consumer's bank placing funds into the merchant's bank account.
But payment gateways are becoming more than simple conduits, and as they add services, many gateway vendors are finding that the term "payment gateway" doesn't do them justice. Just as a hip restaurant doesn't think an open-faced sandwich featuring roasted bone marrow, red onion jam and coarse salt should be deemed a sandwich, payment gateway providers have taken to calling themselves a "payment service provider" or "payment processing package provider."
But those phrases can get confusing, especially as gateways add diverse offerings. Some offer processing and merchant accounts, the bank accounts that allow a retailer to accept debit or credit cards. Others specialize in mobile commerce, fraud management and accepting payment in foreign currencies. Still others provide custom integrations that enable retailers to link payment data to services from other vendors.
The laundry list of features available from gateways today can leave retailers scratching their heads trying to decipher what they really need from their gateways. However, merchants that take the time to study their options, and choose wisely, may find they can squeeze more value out of their gateways, experts say.
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Jason Miller, chief technology officer and vice president of technology at Motorcycle Superstore Inc., found out the hard way the importance of selecting a payment gateway that is tied in to the retailer's other vendors. After noticing that Motorcycle Superstore had to send transaction data to both its payment gateway and its fraud prevention vendors, Miller decided the retailer's processes could be more efficient. That revelation led the online retailer of motorcycle parts and gear to recently switch from another payment gateway, which the retailer declined to name, to Merchant e-Solutions Inc. for its gateway and processing service.
Unlike its previous vendor, Merchant e-Solutions integrates with the retailer's fraud prevention vendor, Accertify Inc. Now when a consumer places an order on Motorcycle-Superstore.com, the retailer sends the transaction data to Accertify to check for fraud. With the old gateway, when Accertify approved a transaction, Motorcycle Superstore then had to send the order to its payment gateway for processing. By having his gateway tied into Accertify, Miller eliminated a step because he no longer has to send payment data twice. When a transaction is approved, Merchant e-Solutions receives the retailer's transaction data directly from Accertify. "Now we only have to support one interface," Miller says. "It's cutting the time we spent sending transaction data in half."
As Miller's company expands in the next few months into the United Kingdom and Australia, Merchant e-Solutions and Accertify will work together to handle most of the technology to process and check foreign transactions for fraud, Miller says, making that earlier integration even more valuable.
While Motorcycle Superstore wanted a payment gateway that integrated with its other vendors, flash sale retailer Fab.com chose a payment gateway that made it easy for mobile shoppers to check out in one click without having to punch in all their payment card information. Offering a convenient mobile shopping experience is essential for Fab because 30% to 40% of its traffic each month is mobile and the retailer's mobile conversion rate averages twice that of visitors to its e-commerce site, Fab.com says.
Fab.com chose Braintree Payment Solutions LLC as its gateway and processor when it launched in 2011, in part, because it offers a product called vault credit card storage that lets consumers store their card information and check out in one click via a mobile device. The card vault service costs retailers $20 per month plus 1 cent per card it stores information for each month, according to Braintree's web site.
Fab.com, which says it is on track to generate $100 million in revenue this year, a sharp rise from $19.9 million a year ago, says Braintree helped it manage its payments processing needs as it grew. Fab.com's initial sales climbed faster than planned and the retailer sold an average of 154 products per hour during its first nine months of operation. That success meant Fab quickly exceeded the initial payment processing volume limit set in its original contract with its acquiring bank, the bank where Fab.com has its payment card merchant account.
Braintree helped Fab.com negotiate new processing limits with its acquiring bank, so that Fab only had to deal with Braintree and there was no interruption to accepting payments. "We never had to deal with the acquiring institution," a spokeswoman for the retailer says.
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