For digital payments, one processor isn't enough

For online merchants, payment processors are an integral piece of the business foundation, acting as the connecting glue between a customer, the payment instrument, the success of a card swipe and the flow of the money into the merchant’s bank account.

Today, customer buying behavior is shifting from a credit-card-only payment preference to adoption of multiple mobile and web-based payment methods such as PayPal and Apple Pay. At the same time, online merchants, which by virtue of being cloud-based, are more rapidly introduced to global customers — and as a result, face global customer demands such as localized payment preferences and standards.

This increasing shift to digital payments is expected to continue — global digital commerce is expected to grow 45% from $1.79 billion in 2017 to $2.59 billion in 2022, according to Statista. There are also more payment processors entering the market, creating a competitive ecosystem in which payment gateways are up against one another in an attempt to corner the digital sales market. However, a single payment processor intending to monopolize digital payments may run into considerable challenges when it comes to offering their merchants the flexibility to expand globally, while simultaneously creating a customer experience that generates revenue.

For a business that’s just starting out, targeting a specific customer segment and country is often a preferred go-to-market strategy. This approach lends itself to using one single payment processor. Some of the key benefits of this strategy include companies being more likely to achieve volume pricing discounts by working with just one payment processor. Also, using one payment gateway means there is only one API with which to integrate.

Additionally, analyzing and managing one source of payments for customer insight is easier than analyzing multiple sources and business owners with just one payment processor have just one relationship to manage.

On the flip side, businesses that stick with the single gateway strategy will eventually find themselves challenged to grow with customer demands, as well as expand globally. As businesses grow, multiple payment processors are not only preferred, but required.

Enabling different payment options based on customer preferences and regional standards, multiple payment gateways provide a strategic business lever to amplify growth in a number of ways:

Globalization. The popularity of payment gateways varies by region. For example, PayPal and Apple Pay are both fairly common in the U.S., but in China, WeChat Pay and Alipay are much more popular. By using a single payment gateway and not responding to regional preferences and standards, merchants risk limiting growth opportunities across those regions.

Customer acquisition. About 55% of online shoppers indicate that they’d cancel their purchase if their preferred payment method isn’t available, a survey by YouGov shows. By not offering multiple payment options, businesses risk creating barriers to customer adoption and thereby lose out on new-user acquisition. A single gateway means potential loss of revenue, particularly among customers who prefer a specific way to pay. For a business that’s trying to position itself for sustained growth, offering multiple gateways will help meet customer demand for different payment options, including a traditional credit card transaction, PayPal or Amazon Payments, to name a few.

Checkout Experience. Using a single gateway also holds a risk of inadvertently creating a suboptimal customer buying experience. If a customer wants to pay using PayPal, for instance, not offering that as an option creates an unsatisfying checkout experience which may affect brand perception.

No downtime or vendor lock-in. Using multiple gateways means merchants have a backup plan in place should one processor experience downtime or reject a payment. Using multiple payment gateways removes the vulnerability that goes with being dependent on one processor. In some situations, payment processors can withhold funds, freeze merchant processing ability or completely terminate an account. Each of these scenarios will hamstring a merchant’s business and result in significant revenue losses. Having backup payment options can help mitigate the losses and de-risk the business.

Capabilities of payment processors are often underutilized as strategic levers for growing a business. As merchants continue to establish and expand their operations, payment services should be looked at through the same strategic lens as any other business decision.

New cloud-powered technologies in payment processing simplify merchants’ ability to add multiple payment processors and manage them in a single place. This fluidity and increased democratization, from a merchant perspective, enables vendors to optimize bank charges based on market geography and the volume of customer transactions.

So whether you sell products on a one-off basis or engage with customers via a subscription-based model, your payment systems offer an additional opportunity to provide better customer experiences and grow revenue. Customers are the lifeblood of your business, so it’s vital to give them as many preferred options as possible before they click the “buy” button.