True Payment Orchestrators like Spreedly have been flipping the script on payments as an unglamorous cost-center. Traditionally seen as a basic utility in the modern economy, we help merchants shift payments to a critical component of a flexible, adaptable business that drives customer experience and makes a direct impact on both the top and bottom line. Part of that image of payments as a confusing mix of costs on top of a necessary piece of functionality, comes from the payments vault – the integral piece of securing and storing payment methods in the digital economy.
In this blog, we will explore typical costs associated with vaulting payment methods as well as the areas where actual costs can come in far above expectations. While pricing may often seem straightforward at the outset, there are some pervasive patterns we have identified in vaulting that lead to inefficiency and subsequent overpayment by customers.
In its basic state, a payments vault securely stores payment information like card details. Credit card vaults commonly use tokenization to store data safely, which involves turning data into a token, a benign reference to the actual sensitive payment data that can only be connected to the sensitive data within the vault. Beyond this basic function, payment vaults may also include a suite of additional features, such as card-lifecycle products (e.g. Visa’s Account Updater, and Mastercard’s Automatic Billing Updater that automatically update stored card details) and network tokenization. A network token is a special payment token created in partnership with the card-networks and issuing banks that can offer a number of benefits and be stored alongside the basic payment token created for a payment method.
Payment vaults may be provided directly by a payment service provider (PSP) or with independent third-party providers like Spreedly. The benefit of using a 3rd-party agnostic provider is that it offers a solution which allows the merchant to integrate with any number of payment providers (like PSPs) without limitation, unlike using a vault provided directly by a PSP. This lets merchants tailor their vaulting and payments engine to meet their specific payments needs.
Let’s categorize and break down the costs an organization may incur when vaulting payments. These are relevant at both the PSP or third-party provider levels:
- Event-Based Pricing - is like a menu that prices each specific “event” that can occur within a vault. Examples include tokenizing a credit card for the first time, updating an expired credit card, or provisioning a network token. Event-based pricing may have embedded third-party costs.
- Usage Pricing - is a basic price established for API calls, processing time, and storage-space used (e.g. stored payment credentials). This is a common pricing framework for many software products and is not specific to vaulting and tokenization.
- Bundled Pricing - Is done when PSPs embed multiple services into a pricing model that includes overall costs. These reflect the “all-in” price a merchants pays and do not always provide itemized reporting.
Vault providers may use one or both of these pricing approaches. While they seem straightforward, as we take a closer look we can begin to see where hidden, substantial costs are incurred by users.
As a provider that has vaulted over a billion payment methods, we have seen and heard the impact of all of these costs and are committed to optimizing these for our clients. Below we itemize these along with a quick example of the pricing impact:
- Duplicate Payment Methods are common in many vaults. The same payment method (e.g. a credit card) is tokenized and stored several times. This increases usage costs and if the card is reissued and updated with a card lifecycle program it multiplies the cost of that update.
Example: The same card is stored three times in a vault. Instead of a $0.20 card update via Account Updater, the same card is updated three times, incurring a $0.60 charge.
- Redundant Card Updates are prolific across card updating services. Event-based pricing for card-update programs incurs costs for clients whenever a “response” is received from the card networks. However certain updates count as a “response” from the networks without actually updating the underlying card information. While these responses may be useful, they do not automatically update the underlying card-data if not identified and acted upon. What’s worse, cards that receive these types of responses tend to repeatedly receive them every time a card is “checked” for an update. The upshot is that a stagnant payment method becomes a recurring cost item that often goes unnoticed.
Example: Each month 100 more vaulted cards receive update “responses” from the networks that are each billed to me at $0.20 as an update, but I receive no value. These costs snowball over time without management.
- Event-Based Pricing for Network Tokens is a pricing approach that treats the creation of a Network Token as a pricing “event”, resulting in large, up-front costs for clients interested in NTs.
Example: Provisioning Network tokens are charged at $0.15/token. If a client wants to provision 150,000 network tokens, they are hit with an up-front charge of $22,500.
- Elevated Event-Based Pricing from PSPs introduces the “movie theater concessions” effect. If you are vaulting directly with a PSP, you are beholden to their event-based pricing frameworks and restricted to their pricing and capabilities. Worse, some providers will charge hefty fees to port your data to another provider.
Example: Instead of paying a competitive rate of $0.18 per card update, a PSP charges $0.25, knowing their sole-provider position gives them pricing power.
Example: A PSP vault provider aggressively prices a request for a “token migration” (when a customer wants to transition their vault to a new or backup vault provider) and prices a token migration via SFTP at $0.10/token.
These may feel like specific cases, but these additional costs associated with payments vaults are important to consider and calculate into the total payments stack return. If a vault provider is committed to event-based pricing, then they may be incentivized to maximize the “events” their vault products enact and price out to clients. This can result in a misalignment of interests between merchant and provider and undermine a good working relationship. We believe that vault users are justified in seeking transparency and attribution for all costs they are incurring through their vault. Event-based and bundled pricing models often make this difficult to obtain and act on. Even if this is available, it may be onerous to act on.
Spreedly is addressing this issue with its Advanced Vault by embedding rules and configurations that automatically identify where redundant costs are occurring and taking steps to minimize them. This active approach to managing client vaults automates vault management in significant ways, reducing costs and overhead for clients. Interested in how Spreedly and our Advanced Vault optimize your payment methods? Get in touch and we’ll show you exactly what our commitment to vaulting excellence and alignment looks like.