In a recent blog post, we discussed why it's important for subscription businesses to offer alternative payment methods like PayPal and Amazon Pay. Today, we’ll share aggregated data insights to show why merchants should consider using multiple payment gateways to grow their business.
In this post, we’ll discuss payment gateway usage and performance metrics including success rate and processing speed, and focus on credit/debit payments. The gateway data in this post are for credit/debit card transactions.
Using multiple payment gateways becomes more popular
Merchants used to rely on a single payment gateway to process all online payments. But nowadays, more merchants are opting to add multiple payment gateways given the added benefits, plus there's a wider selection of gateway providers and gateway integration has become much easier.
Research from Business Insider finds that no one company or gateway has an overwhelming share of the market, and competition among these companies remains strong. This is advantageous to online merchants as you can shop around and find the gateways that best suit your business needs.
Recurly data shows that over 7% of merchants added at least another gateway by May 2019, and that number jumped to just over 10% as of May 2020 (38% lift in the past 12 months).
Having multiple payment gateways is important to grow international sales
Are you planning to expand your business globally? If so, you'll most likely want to consider adding another gateway that fits your local customers’ payment preferences including currency. It’s rare that one gateway supports all currencies well.
According to a research mentioned in Achieving Success with Cross-Border Payments - B2C customers prefer paying in their local currency. 92 percent of online customers prefer to buy in their local currency, and over 30 percent will abandon a purchase if the product is priced only in US dollars.
Another important factor that affects cross-border payment success is the gateway’s connection to the local acquirers. An acquiring bank (also known simply as an acquirer) is a bank or financial institution that processes credit or debit card payments on behalf of a merchant.
Let’s look at one example. A US merchant sells to a UK customer. The customer’s card issuing bank is in the UK. From Adyen’s research, it’s more likely to get a decline when the gateway is working with a US acquirer than a UK acquirer. The US merchant should consider adding a gateway that works with UK local acquirers.
Recurly data shows that merchants selling globally are more likely to use multiple gateways.
Having multiple payment gateways ensures business continuity and peace of mind if a gateway goes down
Gateway outages or performance degradations are unfortunately, not rare events. We looked at outage data for 20+ gateways in 2019. The max outage time was 37 hours, and the median was 3.3 hours. Approximately 50% of gateways had more than 10 outage incidents in 2019.
Gateway outages can have a high cost to merchants. Imagine a big merchant that's accepting 50K payments per hour in peak season and suddenly their only gateway is down for an hour. That’s a big loss of sales and potential customers. Besides the immediate revenue loss, gateway outage can have a long-term negative impact on the customer experience and merchant brand trust.
This can be avoided if the merchant has multiple gateways and uses Recurly’s Gateway Failover feature. Failover ensures that when one gateway is down, the payment transaction will be automatically re-routed to an alternative gateway. See it in action here.
Having multiple payment gateways enhances payment success
Declined payments is a common problem for subscription businesses. It can have a negative impact on revenue, customer experience and loyalty, business growth, and profit. Every online merchant wants to have higher payment success from their customers.
Will every payment gateway yield the same success rate for all your customers’ payments? Your intuition will probably tell you no and that’s a great guess.
Recurly’s Data Science team analyzed payment success rate using data from tens of millions of payment transactions. We found that there are multiple factors that work together to determine the likelihood of success for each payment transaction. Among the most important factors are industry, card type (credit/debit), card issuing bank, cross-border trade (Yes/No), transaction type (Initial or Recurring purchase, $0/$1 Authorization or Purchase), customer country, currency.
In order to control for the effects of other factors on the gateway success rate and see clearer differences among gateways, we narrowed our analysis to one segment of transactions “US customers, USD, Debit Card, Non cross-border trade, $0/$1 Authorization”.
When we looked at the data by the four big card issuing banks, there's a significant variance in the decline rate among gateways. (Note we use the two terms decline rate and success rate interchangeably. Decline Rate = 100% - Success Rate)
This analysis does not tell you what your customers’ payment decline rate looks like from two gateways because it is based on the aggregated merchants data. However, it revealed very clear variances in decline rate among gateways. It triggered the idea of running A/B tests to compare the merchant's own gateways.
Some of our Recurly merchants are pioneers in gateway routing A/B tests. They use the Recurly Custom Gateway Routing feature or the Recurly A/B test system to run experiments.
For example, a merchant wanted to compare gateway A with gateway B. The transactions were randomly routed to each gateway. After a period of time, we analyzed the two gateways' success rate segmenting by card type, card brand, card issuing bank, customer country etc. We found that there is NOT a single gateway that always yields a higher success rate for every segment of transactions.
The A/B test results led us to the concept of intelligent gateway routing. Merchants can apply smart routing rules to send certain transactions to the gateway that yields a higher success rate. In the above example, the merchant can see a higher success rate via routing transactions to two gateways according to the card type (credit or debit).
Recurly's Data Science team also applied machine learning techniques for intelligent gateway routing. We built machine learning models to predict the likelihood of success for each payment transaction based on the transaction’s characteristics. We saw very good offline model prediction results. Based on the machine learning model predictions, every single transaction can be automatically routed to the optimal gateway with the highest likelihood of success.
Intelligent gateway routing is huge for merchants that are serious about combating high decline rates. Even 1-2% higher overall success rate means a lot for your revenue, long-term relationship with your customers, and business profit.
Besides unlocking the power of optimizing payment success rate, having multiple gateways can also provide more information about decline reasons. From our study, we found that one gateway returns 90% of decline messages as “Declined” which basically does not tell much about why the payment was declined. While another gateway returns more specific messages like “Insufficient Funds” and “Temporary Hold”.
Merchants will have a better understanding of their customers’ payment behaviors with more detailed decline messages. Also the clearer decline messages empower Revenue Optimization Engine to recover failed recurring invoices and reduce customer involuntary churn.
Another payment gateway key performance metric is latency times. How quickly can a payment gateway return a message for a successful transaction? The processing speed is important for online payments. It’s not uncommon for customers to abandon their carts if it takes too long for transactions to process. Longer gateway latency can lead to lost sales and revenue.
We hope this post provided you with a solid understanding of the benefits of having multiple payment gateways.