Reduce Your Payment Processing Costs with a Multi-PSP Strategy

Originally published by TokenEx.

Written by Anni Burchfiel.

Choosing a payment processor can be difficult as a merchant must juggle the unique needs of their business against the rigid turnkey solutions offered by PSPs (Payment service providers). Transaction processing costs may skyrocket for businesses with unique needs or high-risk businesses. In the end, many merchants compromise on either affordability or functionality when they choose their PSP. Thankfully, there is another option for businesses that refuse to be limited by a single PSP.

Quick Hits:

• A payment service provider (PSP) acts as an intermediary between all parties to a transaction, enabling businesses to accept transactions.
• A merchant that uses multiple PSPs will capture more transactions as they gain the ability to route each transaction to the PSP most likely to authorize the payment.
• Only using one PSP means a merchant may lose legitimate transactions. These transactions can be retried when a merchant has more than one PSP.
• When a business owns its payment data, it can easily use multiple PSPs to reclaim transactions and negotiate better rates.

What is a payment service provider, and why do they matter?

Payment service providers (PSPs) help businesses accept credit and debit card payments. PSPs facilitate the entire payment process by acting as the intermediary that connects all the relevant parties (customers, merchants, card networks, and banks). Popular payment service providers include Stripe, Helcim, Square, Stax, Clover, Shopify, and PayPal.

Payment service providers are a popular way for businesses to accept payments because they are quick to set up, easy to manage and often accept a wide range of payment methods and currencies.

Why using a single PSP is costing you

Many merchants using only one PSP don’t realize there is another way. This is because payment service providers have much to gain from merchants that rely on them, and only them, to complete payments.

When a merchant only utilizes one PSP, they are unable to take advantage of the differences in transaction success rates between PSPs. Merchants that route transactions based on core characteristics (e.g., local vs. international, low-risk vs. high-risk) maximize authorization rates and say yes to more customers.

Merchants that use only one PSP will often lose payments because their PSP will sometimes decline a legitimate transaction. With no method to retry the transaction, legitimate transactions and customers are lost. This can happen on an even larger scale when a PSP’s gateway goes down. With only one PSP, your business freezes when your provider has interruptions in service.

When your payment service provider is your only avenue to collect payments, they can maintain control over the processing fees they charge. Merchants that use only one PSP have little to no leverage to negotiate rates. Higher rates cost merchants with every payment they process with their PSP. And high processing fees aren’t the only cost.

Owning your data unlocks multiple PSPs

Limiting your revenue collection to one PSP can result in many lost transactions. That revenue can be reclaimed by routing payments between multiple PSPs to capture every possible transaction. However, utilizing multiple payment providers isn’t as easy as signing up for two simultaneously.

Owning your payment data is the key to utilizing multiple payment providers. When you store customer payment data with your PSP, utilizing your payment data with another PSP becomes a costly headache. For example, Acima, a fintech business, tried to move their cards to a different processor, only to realize their current partner wanted to charge them over $100,000 to move the data. According to Acima Credit VP of Engineering, Ryan Christensen, “That’s when we realized we needed to remove the handcuffs and find a partner who would allow us to vault independently and provide the ability for us to onboard new card processors instantaneously.”

PSPs don’t want you to be able to move between providers easily, often holding your customer card data hostage to prevent you utilizing a multi-PSP strategy. However, by taking control of your payment data you can take control of your relationship with your PSP and start reclaiming revenue and cutting payment processing costs.

Benefits of a multi-PSP strategy

When you own your data, your business can easily add or change payment processors. With multiple PSPs, you can split your transaction volume according to the best rates for different transaction types. This ability to split transaction volume also gives your business leverage when negotiating better rates. Many PSPs would rather lower their rates than lose your business entirely.

Additionally, when you have multiple PSPs to route data through, you have a fallback option when payments fail. If one gateway goes down, your payments stay up and running by switching to another gateway. When your primary PSP rejects a legitimate transaction, you can utilize automatic retries with another gateway.

If you want to utilize a multi-PSP strategy and reclaim revenue, it starts with owning your data.