Fast-growing, innovative companies need to deliver a great customer experience in new markets and with new business models. And that requires flexibility in their payments strategy. Flexibility to handle large volumes of transactions. Flexibility to get payments functions they need. And flexibility to do business in countries and currencies -- and with partners -- that they want to work with.
That's why having multiple payment gateways matters.
In this post, Spreedly VP of Marketing Peter Mollins interviews Spreedly's senior data scientist Shoresh Shafei about his analysis of millions of transactions to see why having multiple payment gateways boosts business flexibility.
Hi everyone my name is Peter Mollins with Spreedly and I'm joined by Shoresh Shafei the senior data scientist also with Spreedly. So we're here to talk a little bit about multiple payment gateways and why they are so valuable to organizations that are growing quickly. The reality is that everyone wants to grow revenue quickly but the challenge is that as you're growing quickly you're having to make constant changes to your business and constantly innovating around your customer experience. So companies really they're having to always push the boundaries of their own infrastructure and in particular their payments structure.
That's because payments they're such a vital component of delivering a great commerce experience, a great customer experience. Now there are some tremendous technologies out there that that allow you to very quickly snap in processing. Payment gateways to allow you to accept transactions in many different currencies. However a challenge is that as you start to expand internationally as you start to make changes to your organization and start to look for flexibility you start to require more and more payments gateways in order to build in that flexibility. So today what we're going to do is talk a little bit about that. And look at why multiple gateways are such a powerful way to deliver a great customer experience. And we're going take a look at some of the data behind some of the analysis that we've been doing.
We'll speak with Shoresh about some of the data analysis he's been doing when looking at why
matter. So before we get into that though but I'd like to do we just talk through some of the common examples of situations that we see where companies can really add a lot of business value. The first one that I'd like to emphasize is around business innovation.
When you think about many organizations out there they're growing very quickly as I said but what they're having to do is adjust their business models as they're moving along. So for instance they may be adding a new functionality. One of the ways that the companies are growing is by adding new business models. So it might be that they are looking to add new functionality they're looking to add it an entirely new business unit. I think a great example that is SeatGeek, which is one of Spreedly's customers. Initially they started off as being a company that was gathering websites and providing tickets in one centralized place. But what they realized was that to give a great customer experience they had to deliver the transaction right on their own website. And that required them to connect into multiple gateways to process payments on behalf of various ticket brokers. And now they're continuing to advance, moving into more of an enterprise model for selling events tickets out to their customers.
Payments innovation remains a core part of what they're doing and so as a result they have to be able to connect into multiple payment gateways in order to deliver on the very premise of their organization. We also see the need in terms of geographic coverage. So as companies are growing and expanding internationally what they find is that the payment gateway they are currently using for their in-country transactions simply doesn't cover the regions that they're looking for or as we'll see when we talk with Shoresh a little bit more the performance of that first gateway is not optimal in some of these other different geographies.
Another case where we see the need for multiple payment gateways is around business flexibility. So what you may find is that you may have certain periods of the year maybe you're a retailer around the end of the year you have very high volumes maybe you're an event ticket seller and you have on sale periods where you have extremely high volume. And in any of those cases you're dealing with volume and you have to make sure that your system is up and running regardless of what's happening.
So if your payment system goes down for even a brief period that you know could be millions for multi-million dollar losses and lost long-term relationships that you have to avoid. By being able to connect into multiple payment gateways you have that flexibility to switch as needed if volumes are causing challenges or there's particular issues with one gateway you can very easily switch to another in order to support those continuing transactions. Or there may be other kinds of functionality like fraud services that you are maybe dissatisfied with your current gateway or maybe you're looking at other options in order to supplement the fraud services that you're getting from your gateway. So connecting into multiple services allow you that flexibility.
What I'd like to do now is have a little conversation with Shoresh about some of the data that that he's seen analyzing. So Shoresh, maybe you can start with giving a bit of a background on the analysis that you did and how we can use that data.
Thank you very much for having me. Actually I know that you already mentioned that people talk a lot about for example around the impact of having multiple or using multiple payment gateways. They've talked about globalization they talk about better economics, independence. They talk about flexibility and all of those things. But we actually wanted to take another shot and look at the data that we have and see what our data tells us about the comparison between the one gateway versus having multiple payment gateways. What are that luxury that using multiple payment gateways giving us.
For these I looked at the data that we had from the past couple of month. I analyzed more than 100 million transactions 10% of these transactions were international 90 percent or domestic 70 percent of these transactions were purchases 70 percent of this transaction where authorizations. And I just want to for the people who might not be the familiar with exactly the differences between these two types of transactions type: purchase is when you basically swipe / enter your card and the order is fulfilled immediately but authorization happens when you swipe the card you order something and then for example you get the order in the next couple of days something like that. So the way that these transactions are processed are a little bit different.
That's why we categorize them into different groups. For these 100 million transactions we notice that about 114 gateways have transacted in about 106 currencies. So this gives us a luxury of working with a variety of payment gateways and basically thinking about and considering and studying what is the performance in different currencies. So I looked at three important factors: one factor is the decline rate vary across different gateways? We
looked at the latency among different gateways and also at the same time do gateways actually shut down because people talk about in literature I wanted to see if it shut down how long it takes and what are the consequences?
Okay terrific thanks for that context so let's talk a little bit about some of the results that you found. I think one of the ones that jumped out at me was if you look at a given currency there's always going to be one gateway that's the most popular that people use. However that's not always necessarily the best performing gateway. So can you just get on first off what a what top-performing means and then let's look at some of the data on how popular is different than top-performing?
Right well there are different metrics to define the top. You can say you know what I really am processing a large volume of transactions is what I care about. Or what I care about the most is for example low latency or something like that. But we also know that for many of the merchants decline rates are a huge problem and we totally understand that the whole process of a different transaction cannot be assigned to a particular gateway. There are so many players out there but at the same time we can actually just make a comparison between the different gateways and because of the blog post that we have published in the past we know that for example merchants can change some setting on the gateways and they that can lead to better performances and experience with recorded decline rates.
To get back to your question the best-performing right now you're talking about the one that actually leads to the lowest decline rates. And for many of these hundred plus currencies that we looked into we realized that the best performing gateway is not necessarily the most popular one.
For example actually I have an interesting stats about this so when you look at the data that we have you realize that on average one payment gateway is processing in six different currencies.
You may look at the gateways website they probably claim ten or twenty different currencies but what I mean successfully transacting in that particular currency that's what I take into account is that basically across it the ability payment processor or payment gateways. On average a payment gateway is transacting in six currencies but the interesting thing is that about 50 percent of the gateways that we logged transact in two or one gateways and in fact 48 payment gateways only transact in one currency in our dataset. So now when you go back to those we also have for example popular other popular gateways that they transact in a ton of different currencies. But the problem is that first the most popular gateways with regard to decline rates are not the most used ones and when you stick to for example the most popular the most useful or the best performing gateway in one particular currency they are not consistent across different currencies.
So for example you might have a great gateway in one currency but this gateway is not doing the same exact job in the next currency. That's why when you're talking about decline rates you really need to take a look on that the most popular is not the most successful one and the most successful ones are not consistent across different currencies that's one of the needs for using multiple payment gateways.
So let's talk a bit more about that consistency. So are you saying then that you see some gateways maybe they are top performing in one currency but then they're middling or bottom in another?
Exactly so we have actually two type of performance when our making a comparison. First, it's exactly what you said the payment gateway A is really doing a great job in currency A but not doing such a great job in currency B. That's one. But even if you look at the payment gateway A and currency A the problem is that we're talking about transactions that are international and domestic. And you're talking about a purchase versus authorization. One gateway might be doing a fantastic job in handling for example international and domestic authorizations but not a great job on for example international domestic purchases. There are a couple of different ways that you can look at the problem.
Okay so what does it actually mean when someone is using multiple payment gateways? So for an e-commerce service what does that mean? That they're processing some portion of their transactions in one gateway and then in another.
Yes they will have this opportunity to choose from the gateways and basically for example if they are using a service like Spreedly they can tell payments to go through a specific gateway. So they can route some of the payments through one gateways and some of the other payments through another gateways.
Okay great now you mentioned decline rates does this apply also from a latency perspective in terms of the gap between gateway performance?
Yes we can have the same conversation for latency as well. What do we mean by latency the latency in Spreedly's term is the time that it takes to hear back from the payment gateway. After we submit a transaction to them and this normally should be of the order of normally milliseconds but for a very popular currency like USD where there are 85 or 86 different gateways transacting we see that most of these gateways are transacting of the order of a couple of milliseconds but suddenly we have one or two payment gateways that are transacting something around 15 to 20 milliseconds.
So if that is the payment gateway that you are working with you really need to think about ways to optimize your payment performance by lowering the latency rate. Especially if you're for example in the ticketing industry and you want to process hundreds of thousands of tickets for a popular event in a matter of hours or days.
So what does latency actually impact?
Let's assume you want to purchase something. The longer you wait the bigger the disruption to customer satisfaction from the customer point of view. And as I mentioned from the merchant point of view you want to make sure that your payments are actually processed in a timely manner.
So imagine processing payments in a matter of milliseconds versus processing that amount of 20 or 30 milliseconds.
Ok can we come back to something you mentioned at the beginning around the coverage of gateways. So you mentioned that there is a significant number that you analyzed that I actually only cover one currency. Would you mind explaining that a little bit more?
So we looked at the numbers and we realized that you actually have about 48 different gateways that are transacting in only one currency. That's what I mentioned. An interesting point is that when you go to the website of these gateways you realize that they are framing or setting that are processing in multiple different currencies. But when you look at the real data that is processed and we look at the successful transactions that the majority of organizations only transacted in one currency or if they use multiple currencies the transaction got actually declined.
So why would that matter what why would I want to have multiple payment gateways then if that's the case?
It's actually the most important reason for having a multiple payment gateway is when you are developing and you are thinking about accepting payments. Not only in a different currency but the new currencies you're going to new regions and your payment gateway is simply not capable of processing your payments in that new region and in that new currency. Three possibilities from that happens for the long latency times. This becomes a problem if the Gateway shuts down.
That could be like a temporary shutdown but is there also sort of a risk avoidance benefit if my gateway doesn't just shut down temporarily but permanently. Let's say I'm on one gateway and that gateway is processing payments in a particular geography but then that gateway no longer is in business right?
So the problem is not only about you not being able to process payments but also the problem is if all the data that you have is stored on one particular payment gateway. First of all you might have a tough time to basically transfer that data and also in the process of moving the data that you have from one payment gateway to another payment gateway you might have to basically lose revenue. There are couple of thing that are basically threatening your business. I mentioned must give you flexibility just to be able to switch between between gateways like I was mentioning at the beginning in the example of like a period of high demand where my gateway may go down or may not be able to process payments.
We have customers that are actually testing different payment gateways in different time periods to see which one is working the best for them because we give them this luxury of being able to use more than 100 payment gateways. Decline rates, gateways shutting down, technical issues, sticking to particular rules or services, caused by a particular gateway. There are many reasons that customers do not want to stick to one particular gateway.
Okay, Shoresh, thank you very much it's been a really illuminating conversation to understand why companies need to have multiple gateways part of their payments stack. They need a boost flexibility in order to support innovation and support more successful transactions
Ultimately that's about driving more revenue and delivering a great customer experience for their clients. I really appreciate you looking at some of that data around why multiple gateways matters so much.
I'm sure we'll be back in touch for some additional conversations on topic.
Thank you for having me.