The Complete Guide to Multiple Payment Gateways

Everyone wants to grow their revenue, but exponential growth requires constant business and technical innovation. Innovative companies constantly push the boundaries of their infrastructure including payment gateways to expand into new geographies, markets, and business lines. Yet, the demands they place on their business are often constrained by the limitations of their technical infrastructures.

One area of constraint for merchants is around the solutions they use to accept payments. Innovators require flexibility in these payments and e-commerce infrastructures. Siloed payments solutions may not suit or adapt well to the specific needs of merchants and marketplaces and adding new gateways are costly both in time and money. As a result, an e-commerce company will either have their ambitions to grow into new markets limited or delayed.

This often leads to innovators running into limits on their ability to adopt siloed solutions to suit their specific business and technical needs. This paper explores how innovative, fast-growing companies rely on multiple payment gateways to support their unique and changing payments requirements.

A Multiple Payment Platform Supports a Great Customer Experience

A common theme of fast growing companies is that they deliver an exceptional customer experience. Customers that return and recommend a service demand more than just an average value. A vital part of that customer experience is the process of accepting payments that customers actually use. Declined transactions and long latency times for approvals can damage goodwill and reduce customers' lifetime value.

Plus, the inability to accept payments in the way customers demand, in the markets where customers are located can lead to long latency times for approvals. Not being able to accept payments will damage the customer experience.

Delivering a great customer experience requires reducing these false declines, cutting latency, and ensuring that customers can pay as they prefer. That isn't always simple with a single gateway. It is much more efficient to optimize multiple payment providers via one platform.

The Primary Business Advantages of Using Multiple Payment Gateways

As a result of these challenges, fast-growth companies connect their applications to multiple gateways to facilitate both business and technical innovation. Let's take a look at several of the key reasons for using multiple payment gateways in more detail.

Supporting Business Innovation

e-Commerce continues to grow at a staggering pace. Online sales are projected to reach $5.9 trillion by the end of 2023 with an 8.9% growth rate year over year. As this growth rises, more and more businesses will grow into new markets and build new business models. For instance, SeatGeek has evolved its model over time from directing purchasers of event tickets to ticket broker sites for purchase to delivering a complete customer experience within their own solution.

Because payment orchestration supports more than one payment gateway, e-commerce services are able to introduce new and dynamic business models. For example, a food delivery company aims to bring on thousands of restaurants and corner stores. But each of these merchants has its own payment provider. The delivery company not only can't integrate with each provider, it would rather differentiate itself by being able to make it easy for new merchants to onboard by offering easy connections to whatever gateway the merchant uses.

Increased Geographic Coverage

The need for more than one gateway is clear when your business expands, particularly abroad. As you sell across countries, you'll notice varying levels of support. Some gateways may cite support for a particular country, but in fact their support may cover only certain payment methods and currencies. Or their ability to process transactions successfully and quickly is less compelling. This can be especially true for domestic versus international payments.

By adding support for multiple payment gateways through payments orchestration, an e-commerce service can route transactions to the gateway that provides the best support for a particular region. The result is more successful transactions across multiple markets.

The Ability to Connect Multiple Payment Processors

Rather than being bound to a single payment processor, which usually does not align with business needs or customer preferences, it’s better to simultaneously connect with multiple payment processors. This has a couple of advantages. One being the ability to route transactions to make them cost efficient and the other is to accept all forms of payments your customers use.

For example, a ticketing platform like Seatgeek has been enabled to accept various payment methods from fans all over the world, catering to the individual preferences of millions of its customers. Whether a customer prefers to use credit card, PayPal, or a region-specific payment method, Seatgeek can accommodate this thanks to multiple payment processors, while minimizing payment failures and optimizing transaction costs. This enhances the user experience, increases customer loyalty, and enables business growth.

Increased Business Flexibility

Using multiple gateways makes great business sense when you consider the flexibility it gives your team. As you work with a gateway in a particular region, you may discover that fees, contract requirements, and other business issues degrade the value you get from your relationship. By working with multiple gateways, you can simply shift your transactions to another partner as needed.

There are many gateways available for merchants to use. And the unfortunate reality is that some of them won't be around in the long term. Storing card data outside of the gateway, or with an agnostic token vault that is outside of the gateway, provides tremendous security and flexibility for your team to shift gateways if needed.

More commonly, there might be a situation where the gateway simply goes down or is unresponsive. When that happens you can lose a tremendous amount of customer goodwill, not to mention revenue. But with multiple gateways on hand, you can efficiently re-route transactions through an alternative gateway with limited disruption.

Another common scenario is when a merchant may have an exceptionally high volume of transactions. For instance, Spreedly customer Rappi offers delivery services in several Latin American countries. During large events and holidays, there is a massive influx of demand. Companies that have similar bursts of transactions need alternatives if a gateway can't handle the volume so that their on-sale can proceed smoothly.

Merchant Account Flexibility

As the payments industry evolved, there were two kinds of providers. One that offered a combined gateway and merchant account. And others that were payment gateway only. Merchants that wanted simplicity often chose the combined approach, despite the higher transaction costs. While higher volume merchants that were comfortable with managing the process often would use their own merchant account and opt for the more cost-effective transaction fees. While both are valid options, there's a middle ground where both options are used by the merchant.

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For example, your business might have negotiated great processing rates from a provider, but you want the flexibility to work with the gateways that meet your specific needs. Or, you may simply want the option to move from one gateway to another without the hindrance of adding a merchant account when you switch.

Support For Multiple Payment Options

Part of providing a great customer experience is to offer payment options that your customers demand. One of the world’s most popular payment methods is PayPal, which has 435 million users. As one of the world's largest internet payment companies, many consumers have PayPal accounts and prefer to use PayPal rather than enter credit card details into yet another website. This same benefit can also be a downside. Having to click away from your checkout page to the PayPal site is a bad user experience which can depress sales.

By using multiple gateways, this challenge can be avoided. Most companies use one gateway for most transactions and another for customers who want to pay with PayPal. Even if you don't use PayPal as your main payment gateway you can still offer it as an alternative. At the same time, this approach provides an excellent backup in case your primary payment gateway or merchant account experiences problems.

Access to Additional Payments Functionality

A merchant may have a preferred payment gateway that they want to work with because of preferential rates, or another business value. But that gateway might not offer all the services that they need. For instance, they might not support Level 2 or Level 3 metadata. Or they might lack 3DS support.

As a result, it likely makes sense for business reasons to connect to the gateways that cover the use cases needed. Then, when Level 2 or 3DS support is needed, the merchant can simply redirect transactions to the gateway that supports their need.

What Does the Data Tell Us About the Advantages of Multiple Payment Gateways?

At Spreedly, we collect rich data around the success metrics of transactions, payment methods, and gateways. We use the insight generated from that data to help our customers provide an even better customer experience. Our data science team analyzed tens of millions of transactions processed in conjunction with the Spreedly platform over the past 36 months. To understand how well the reality of multiple gateways compares with the business value we outlined above.

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First, let's look at general attributes of the data collected. 30% of the analyzed transactions were authorizations and 70% were purchases. The transactions were 90% domestic purchases and 10% international across all currencies. To be clear, a cardholder in Argentina transacting in Argentine Pesos would be classified as a domestic purchase for our analysis.

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Included in the assessment were a total of 155 gateways and 147 currencies, for a strong cross-section of global transactions. Across all of these transactions, we wanted to assess how multiple gateways help to drive lower decline rates and latency. To do so, our team compared the metrics for decline rates and latency across:

• Different currencies
• International versus domestic transactions
• Authorization and Purchase transaction types
• Different gateways in various geographies

A key recognition as we look at the data is that the gateway is only one part of the payment infrastructure. However, if we attempt to control for this, the data reveal important insights for merchants evaluating their gateway strategy.

We assessed the results to determine confidence levels. Statistically speaking, we are reporting these results at a 1% significance level. Now, let's look at the key conclusions drawn from this analysis.

Payment Gateway Performance Fluctuates Depending on Transaction Type

In addition to variability across currencies served by the gateways, there is also a significant difference in gateway performance based on transaction type. Decline rates when compared across gateways vary significantly when categorized by authorization versus purchase and domestic versus international transaction types are correlated with decline rates.

The same holds true for latency levels. Our analysis highlights variability of transaction latency by gateways depending on the type of transaction.

There's a Need For Geographic Coverage Across Payment Gateways

International coverage is not a guarantee when you pick your gateway. We found that the median gateway processes transactions successfully in just three currencies. 38% of gateways analyzed transact in two currencies or less‚ in fact 36 gateways processed just one currency or less. So, if your business is planning to expand internationally, you need to evaluate your options.

Many businesses will have a significant market in their domestic currency and will have negotiated favorable arrangements with their payment gateway. They might then be concerned about giving that up in exchange for moving to a gateway that has broader international coverage. But that doesn't have to be a choice if you connect your application into multiple gateways. You can continue to transact in your preferred domestic provider and rely on another gateway for international transactions.

Decline Rates Vary Across Payment Gateways

If we narrow our analysis to focus on one currency, we can see more clearly how decline rates across different gateways compare. Focusing on USD as that currency makes the most sense, as we have 106 gateways in our sample set that transact in US Dollars. This also helps eliminate the variability that might come from a gateway concentrating on currencies that may have a higher average decline rate.

We found by assessing these 106 payment gateways that the variance of decline rates was very high. With the ceiling being 98 percent and the floor of 2.8 percent. The median of all analyzed USD gateways was 20.3 percent. This means that by routing USD transactions to multiple gateways you could become drastically more efficient.

This validates the importance of not simply assessing your gateway vendor and its performance, but to have flexibility in your approach. That might mean flexibility in different markets to take advantage of relative success rates. And it might also mean flexibility to work with a different gateway provider if your existing provider is not successfully transacting at the level you expect.

We also found that if a payment gateway performs well in Malaysia, that does not necessarily suggest that it will be a top performer in Chile. This variability of which is the top performing gateway in a particular market is a compelling reason to work with multiple gateways in order to maximize the volume of successful transactions across markets.

Latency Rates Vary Across Payment Gateways

A similar challenge faces merchants around latency rates. This is the time required for a transaction to be completed. You can easily imagine the frustration that a consumer feels when there is a long latency to complete a transaction. They may assume something has gone wrong and abandon their cart or get frustrated and leave. This leads customers to remember the frustration the next time they’re selecting a vendor and simply go elsewhere.

The reasons for latencies can have many sources, and just like declined transactions, many of these reasons are external to the payment gateway. However, there are many lessons that jump out from a comparison that mitigate this concern.

Looking at the data, we can compare the performance of payment gateways across currencies. Here, much like for declines, we can see that gateways that have very low latency rates in one currency are seldom top performers in other currencies. That means that for a merchant to select a single gateways to service all the currencies they market in means frustrating a large proportion of their customer base.

We selected 10 of high-volume currencies, and identified the gateways with the lowest latency rates by currency in a sample of transactions in the last 36 months. Then we marked each with its own color. You can immediately see the diversity of gateways across the top 3 across currencies. There is very little consistency, as a top performer in one currency is often not in the top 3 three for another.

This becomes particularly challenging when you consider that your business is trying to expand into new markets. If you move into the new market and provide a poor purchase experience for your customers, you're less likely to gain traction in that geography.

Payment Gateways Coverage Is Sparse For Particular Currencies

As your business grows internationally, you need to have the ability to accept payments in the regions where your customers are and where you want to sell. Without coverage, you create a source of friction for a customer to make a purchase. This challenge becomes even more apparent when you recognize that in our analysis we found 10 currencies that had a single gateway covering them.

When looking at breadth of coverage across geographies, we found that the median currency was supported by only seven payment gateways. This makes a global strategy with one payment gateway impossible to manage because you may find that the currencies that you want to support are not all covered by a single gateway. Again, by working with multiple gateways and selecting which to use for a particular currency gives you the flexibility to expand into the markets you want to target.

Should I Choose One Gateway that Supports Multiple Currencies?

As merchants expand internationally, their need to process payments in multiple currencies becomes essential. A valid approach for a merchant then is to select a payment gateway that supports the currencies needed. This may have some advantages, depending on the priorities of the merchant. But there are significant downsides that can have short-term and long-term impacts on revenue.

As we discussed above, payment gateways differ in terms of their success rates and latency levels. This problem holds true even when looking at a single gateway's performance across a basket of currencies. A gateway might perform well in terms of transaction success and latency times in one currency, but underperform in another.

We see that in looking at the data below. Here we see a top performing gateway for Euros and Mexican Pesos radically underperforming for the Canadian and United States Dollar. While it may be enticing to have all North American payments run through a single gateway this performance fluctuation will drag down revenue in the United States and Canada for the merchant. This will result in customers taking their immediate purchase and long-term business elsewhere.

This challenge can be addressed by switching payment gateways based on what currency the user is transacting in. While latency and transaction success aren't the only determinants for which gateway a merchant should choose, they are important. By connecting with multiple gateways, a merchant can select and, when needed, rebalance a portfolio of gateways. Merchants can select which gateway makes the most sense for them for each currency and then if needed, move to another if performance erodes over time.

Gateway Popularity and Decline Rates Don't Always Match

While it is not the only consideration when evaluating which gateways to select, decline rates are an important factor. In our analysis, we compared the volumes of transactions for a given currency versus the decline rates experienced in that currency. We found that there often was a mismatch between the two. That is, the gateway with the lowest decline rate was infrequently the most popular.

This again highlights the fact that companies choose their gateways for many reasons, not just decline rates. It will materially affect your revenue, and must be part of your calculus. After all, decline rates have a short term impact by reducing the amount of revenue generated for a given set of transactions. Plus, it affects the lifetime value of a customer because of their likelihood to not rely on your business in the future if they experience a decline.

The analysis we ran compared the transaction success rate of the top performing gateway in our dataset for a particular currency versus the most popular payment gateway for that currency based on the number of transactions in that currency. We took a look at the top 20 gateways that transact in USD and the results are striking.  The most popular gateway by transaction volume had a transaction decline rate of around 29 percent which was 3.4 times higher than the 6.6% of the most efficient gateway.

But even in cases where the difference is small, imagine what that difference means to your business. What would adding 1% to your successful transaction rate mean for your revenue and long-term relationship with your customers?

By connecting to multiple payment gateways, you don't have to sacrifice one to the other. You can select the vendor you are most comfortable with from a business perspective and leverage better performing gateways where you benefit.

The Data Supports Multiple Payment Gateways

The data is clear. Instead of reflexively relying on a single gateway, merchants should understand their business needs. A single payment gateway is not sufficient enough to handle various transaction types and geographies, requiring a reassessment of the traditional reliance on a single gateway. In particular, companies growing fast should evaluate whether the importance of business flexibility, addressing latency, or transaction success matter to them. If so, a balanced portfolio of gateways can give you the opportunity to maximize successful transactions across different transaction types.

Payments orchestration allows your business to provide a broader range of payment options, catering to diverse customer preferences and fostering loyalty. By optimizing their payments stack, a business not only enhances the customer experience but also paves the way for sustainable growth. Thus, adopting a multiple gateway strategy is not just beneficial but strategically vital for businesses looking to scale and meet evolving global demands.

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