Choosing the payments processor that’s right for your business

Once a company decides that it needs to have payment processing as a part of its product offerings, there are a number of ways to go about doing that. One of the easiest ways is to work with a payments services provider (PSP) like WePay. That lets you harness a payments infrastructure that’s already been built out instead of recreating the wheel by building your own, and depending on which PSP you go with, you might also get help with things like regulatory compliance and customer support.

But PSPs aren’t the only game in town. We’re a fairly recent innovation in an industry that in some regards hasn’t changed much since the 1970s, and as you might well imagine, there’s a lot of different legacy players offering a range of different services.

It goes without saying that we here at WePay have built the best possible payments solution for specific types of businesses —  online platforms like crowdfunding sites, small business software providers and marketplaces that provide value by linking payers with payees without controlling one side of the transaction the way a traditional merchant might. Nobody else in the industry offers the same blend of flexibility, regulatory compliance and 100 percent safety from losses due to fraud.

Yet payments is an area where there really doesn’t exist a one size fits all solution, despite what PayPal might like you to think. Depending on the nature of your business and what your goals are, a different type of payments processor might be right for you. Here’s some of the different types of payments partners along with their pros and cons.

Gateways

Gateway companies are the OGs of the payments world, providing a technology layer that enables a company to interface with an acquiring bank to process transactions. If you are looking to build your own payment solution from scratch, then you will probably need to work with a gateway. Gateways are not interoperable — every acquiring bank has different gateways that they work with. Some, particularly those that are wholly owned subsidiaries of an acquirer like Vantiv, only work with a single bank. Gateways offer flexibility and a lower per-transaction fee at the expense of significant upfront and ongoing costs associated with creating and running a payments system.

Examples: Chase Paymentech, First Data, Cybersource

Pros: 

  • Extremely flexible with regard to the flow of funds, user experience, etc
  • Large, reliable companies that have been around for decades
  • Typically, lower per-transaction fees as middlemen are cut out

Cons:

  • Geared toward larger companies
  • Developer tools are often outdated and hard to work with
  • Contract negotiations take a long time and can be taxing
  • The need to build comprehensive risk, compliance, and security teams and systems in-house at great expense
  • Pricing is complicated — most work on a cost plus model with upfront costs, monthly minimums, exclusive contracts and termination penalties
  • Not interoperable — going international will likely mean using a different gateway to interact with a different acquirer in each market, meaning a huge development load for every new expansion

Independent Sales Organizations (ISOs)

Independent Sales Organizations, or ISOs, are the value added retailers of the payments world. Their primary purpose is to market and sell merchant accounts to businesses on behalf of an acquiring bank. Most ISOs have a single acquirer they work with, but some of the larger ones work with several. It’s hard to generalize too much about ISOs, as it is a diverse industry — on the small end they may be little more than a sales office peddling merchant accounts to local brick-and-mortar businesses, while larger ISOs often offer a greater degree of technology, service, and support to their customers. ISOs are generally unsuited for platform payments, as their primary use case is providing merchant accounts for an end retailer.

Examples: Too many to list. Here’s Visa’s list of registered ISOs.

Pros:

  • Makes it much easier to acquire a merchant account from an acquiring bank
  • Generally you have a single point of contact at an ISO which may lead to a higher level of support
  • May offer a way for merchants in riskier industries to get an account, as some ISOs are willing to underwrite some of the risk in exchange for higher fees

Cons:

  • Platform payments are not a core competency, best for traditional e-commerce sites
  • Setup may be technically difficult
  • The need for platforms and larger e-commerce sites to build comprehensive risk, compliance, and security teams and systems in house at great expense
  • Smaller ISOs may offer little in the way of additional services beyond a basic merchant account

Payment Service Providers (PSP)

Payment Service Providers, also called PSPs and payment facilitators are a newer class of payments companies that bundle an acquirer, processor, gateway and support for alternate payment methods into a complete payments solution. PSPs are very developer-focused, providing modern tools like APIs and SDKs as well as a complete technology stack for payments processing. The downside is that the most regulatory compliant of them will impose their own checkout flow on a transaction, which can hurt brand building and the user experience, while some that are more flexible offer less in the way of fraud mitigation and regulatory compliance.

Examples: WePay, Braintree, Stripe, Balanced, PayPal

Pros:

  • Modern developer tools and pre-built technology stacks that make it much easier to onboard new users and start accepting payments fast
  • Lower upfront costs and better implementation support.
  • Better adapted to the needs of platform companies
  • (WePay specific) Handles 100 percent of regulatory compliance and risk management issues, as well as mitigating losses due to chargebacks

Cons:

  • Higher transaction fees
  • Often co-branded, diluting the platform’s brand
  • Often impose their own checkout flow, which can hurt conversions

To Sum Up

There are a lot of players in the payments space, all of them with slightly different product offerings geared to different types of businesses. A large multinational company is going to want to work with different partners than a mom-and-pop retailer, and a platform company is going to have different needs than a company that’s an end merchant. The key is finding the right kind of payments provider that meet your specific needs. If you’re a platform looking for an easy and simple payment API, WePay can help. Contact our API team at API@WePay.com to hear about how we make processing payments simple, safe, and profitable.

 

FundRazr Goes Mobile With WePay

FundRazr is a global crowdfunding platform that manages donations to over 40,000 campaigns, totaling over $50M to date. As they look to grow their business, they will continue to rely on payment providers to help them expand their offerings and simplify the user experience. In late 2013, WePay partnered with FundRazr to help improve payment processing across the platform. 

In the crowdfunding industry, growth increasingly means tailoring your site to the mobile audience. FundRazr is working to do just that from every angle. They have made improvements in their payment process and have put a serious focus on responsive design. However, the company credits WePay for the success of their mobile payments. The partnership with WePay drastically simplified the payment process on mobile devices, resulting in a 73% increase in successful mobile payments since launching WePay last year.  

“WePay has allowed us to significantly increase our conversion rates, simply by partnering with them,” said Bret Conkin, Chief Marketing Officer at FundRazr. “Our relationship with the WePay team has been vital thus far and we will continue to rely on them for campaign payment processing going forward.”

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So far this year, WePay has 10% more successful payments than other payment providers on the FundRazr site. This is critical, particularly as FundRazr looks to break into the business crowdfunding landscape later this year with a suite of solutions designed for startup, idea-stage companies and others in the business community. The company is developing ‘white-label crowdfunding’ where FundRazr software can be integrated into other websites to turn them into a crowdfunding portal. And, they’re working towards partnering with corporations to provide them a platform to donate to campaigns of charities they support, start their own, or donate rewards or fees to existing campaigns. 

We couldn’t be more excited about FundRazr’s plan for growth—or pleased they see us as a critical ally to help them get there.

Making Sense of the Payments Landscape at Commercism 2014

Bill (WePay’s CEO) spoke today at Commercism, a conference focused on the cutting edge of E-commerce. Bill shared his take on the hidden infrastructure that supports online payments and how this infrastructure affects decisions that platforms and marketplaces have to make when choosing a payments provider.

The payments landscape can be difficult to make sense of, so Bill also shared a list of payment terms (a glossary) that people might find helpful. We’ve attached that here!

What Is An Aggregator?

At WePay, we often talk about ‘aggregation.’ Most often, we’re selling WePay against the idea of aggregation - against a potential partner setting up their own internal payments operation and aggregating funds into a single account. That’s not necessarily an easy concept to understand, though. Here, WePay’s General Counsel, Susan Dunn, takes a closer look at what exactly defines an aggregator.

Payments is a highly regulated industry. Not every flow of funds that is possible as a technical matter complies with applicable laws and regulations.

Take the ability to accept credit cards as an example. These days almost anyone can get a merchant account and accept credit cards as payment. If you read the fine print, however, you’ll discover that the card networks (Visa, MasterCard, and Discover) impose significant restrictions on how a merchant account can be used. Violate those restrictions, and you can incur thousands of dollars of fines and have your merchant account revoked.

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Marketplaces and Money Transmitter Licenses

*This post is an abridged version of a presentation given at the Law Seminars International “Mobile Payments Law” conference on November 22, 2013.

An “online marketplace” is a website that facilitates transactions between third party buyers and sellers, rather than between customers and the website itself. eBay was an early pioneer in this business, followed by Amazon Marketplace, Etsy, and a host of others.

Marketplaces occupy an ambiguous place in the supply chain for goods and services. Marketplaces connect buyers and sellers. They differ from online stores, which buy and sell in their own names. Some marketplaces maintain their distance from the supply chain and provide little more than passive hosting services for online advertisements. Other marketplaces curate buyers and sellers, deliver digital goods, or guarantee buyer satisfaction. Many marketplaces provide payment services so that buyers can pay sellers on the website.