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5 Reasons you need a gateway for POS payments and 5 reasons you dont_ACCEO
1. 5 Reasons You Need a Gateway for POS
Payments and 5 Reasons You Don’t
Anand Goel, CEO – Optimized Payments
2.
3. • Understand a framework for evaluating gateways and non-
gateways
• Understand features and benefits provided by gateways and
non-gateways
• Understand the economics of gateways and non-gateways
Actionable Takeaways from this session:
4. • About Optimized Payments
• Defining Processors
• Defining Gateways and Non-Gateways
• 5 Reasons You Need a Gateway
• 5 Reasons. You Don’t Need a Gateway
• Summary
• Q&A
Outline
5. • Niche consulting firm with 12 years of card payments
experience
• Helped over 50 Fortune 1000 firms evaluate and implement
gateways and other components of payments infrastructure
• Helped our clients save over $220 million in card related
fees
• Independent and trusted payments partner
About Optimized Payments
6. • Connects a merchant to the card networks – Visa, MasterCard,
Discover and American Express for authorization and/or settlement.
Also connect to gateways, if used.
Defining Processors (Merchant Acquirers)
• Provide other
products;
including
gateway,
security, gift
cards, fraud
• Provide funding,
reporting,
service
7. • A payment gateway is a service provider that connects a merchant’s
POS/ERP/shopping card to the payment processors for authorization
and settlement
• Many gateways will connect to multiple processors, while offering
functionality to simplify connectivity and enhance security
• In retail channel, gateways are also referred to as switches, semi-
integrated solutions and ‘non-gateways’*
• There are hundreds of gateways in the marketplace. The quality,
services and benefits of each may vary significantly
Defining Gateways and Non-Gateways
*There are architecture and on-prem vs. cloud deployment differences between traditional gateways, switches, semi-integrated solutio
and ’non-gateways’.
8. 1. Best of Breed Solution (features not offered by acquirer)
2. Simplified Architecture (connection to multiple processors)
3. Security & Tokenization (“omni-tokens”)
4. Business Flexibility (ability to change processors, test auth rates
between processors)
5. Economics Favoring Mid-Market Merchants
5 Reasons You Need a Gateway
9. Homegrown Solutions
•Many of the largest
enterprises build direct
connectivity to their
payment processors
and payment networks.
•This requires a high
level of sophistication
and IT resources but
allows for in-house
technology and
support.
Switches
•Payment connectors
that pass transactions
with limited
functionality.
•Benefits of a switch
would be for speed
•This appeals to the
largest retailers and
grocers.
Middleware/Non-
Gateways
•Some payment
providers support all
the functionality of a
gateway but provide
on-premise integration
into the POS and direct
to processor
connectivity.
•Benefits of these
solutions are the
reduction in “hops” in
the transaction.
•Great for large, high
volume retail and
restaurants.
Alternatives to Gateways
While many consider any connection between two points (merchant and
processor) a gateway, there are alternative options to traditional gateways:
10. 1. Economics Favoring Large Merchants
2. Increased Flexibility (combination of building components
inhouse, selecting some components from processors)
3. Want End to End vs. Point to Point Encryption (acquirer tokens)
4. Reduce Hops (on prem vs. cloud gateway solution)
5. Estate Management Solution
5 Reasons You Don’t Need a Gateway
11. • Scenario 1: Retailer with 10,000,000 annual transactions
• Vendor A = $0.04 per transaction ($400,000/YR)
• Vendor B = flat monthly fee totaling $300,000 annually
• Vendor B provides $100,000 in savings, and does not increase as processing volumes
grow
• Scenario 2: Retailer with 1,000,000 annual transactions
• Vendor A = $0.06 per transaction ($60,000/YR)
• Vendor B = flat monthly fee totaling $180,000 annually
• Vendor A provides $120,000 in savings, much lower than the flat monthly fee
• Make sure you are accounting for all types of fees and review your offers carefully
• Additional implementation, encryption/tokenization, per location, monthly support, P2PE,
routing, account updater, authorization optimization, fraud management, etc. fees could
add up quickly
Business Model Comparisons
12. Evaluating Gateways Based on Channel & Size
Merchant
Size
Annual
Txns
Channel
Needs
Recommendation Perspective
Small 100K CP Square Register, First Data
Clover, PayPal Here
Gateway built into POS
Small 100K CNP Paypal, Stripe, Braintree No separate fees for gateway services, bundled
with core processing
Small 100K CP + CNP Square, PayPal No separate fees for gateway services, bundled
with core processing
Medium 1M CP Freedompay, Cayan Genius Strong competitive solutions with origins in retail
Medium 1M CNP CardConnect, Acquirer
Gateways
Acquirer gateways offer competitive pricing
Medium 1M CP + CNP Freedompay, Cayan Genius Offer competitive omni-channel solutions
Large 10M CP Tender Retail, ACI PAY.ON Competitive pricing, charge monthly fees instead of
per transaction fees
Large 10M CNP Cybersource, CardConnect
Acquirer Gateways
Established solutions
Large 10M CP + CNP Tender Retail, ACI PAY.ON,
Aurus, Freedompay
Strong omni-channel solutions while being
processor agnostic
13. • Identify your needs and budget for a gateway or non-gateway
• Conduct a gateway RFP if choice isn’t clear
• Utilize a consulting firm if you need help
Summary
Anand Goel
anand@optimizedpmts.com
404-542-8520
Notas del editor
Best of breed - Here are some capabilities that you may want but do not want to build and/or obtain from your acquirer – routing to multiple processors, least cost routing, fraud management, wallet management, terminal management, custom industry solutions, settlement reconciliation
Simplified architecture – a single connection can help you connect to multiple processors services
Omni-tokens – using a single gateway/switch can help you generate global “omni tokens” that utilize the same token whether the customer shopped online or in store. This allows for many use cases like shop online and return in store
Business Flexibility – having a gateway sit between you and the processor allows you to change processors with much greater ease as changes don’t impact POS
Economics – most gateways charge a combination of monthly or per click transaction fees. This structure is favorable to mid-market merchants. However, few charge flat monthly fees favorable to larger merchants…discussed on next page.
While we discussed some of the major gateways in the payments industry, there are several alternative options to a traditional gateway.
Some of the largest companies in the US have homegrown solutions, where they connect directly to their payment processors and networks like American Express and Discover. This type of solution requires a high degree of sophistication and IT resources internally at an organization, but allows merchants to keep the “gateway” (air quotes) solution in-house. This can be the most cost-effective solution.
Another alternative to gateways could be a switch. A switch essentially connects the merchant to the processor with limited support and functionality. Again, this would require a lot of internal IT resources to support. But the benefits of a switch would be for speed. The less hops or connections, then better. Another benefit is the reduced cost, sometimes fractions of a penny. We have seen switches used for many of the largest grocers and retailers in the country.
Examples are …
Finally, a middle-ware or non-gateway, is a solution in the marketplace that does not act the same as a traditional gateway, but are still able to offer all the same benefits like tokenization, encryption, and connect a merchant’s POS to their payment processor. Again, the benefit of a solution like this is to reduce the amount of hops within a transaction, but offers more functionality than a switch. We have seen these used at large, high volume retailers and restaurants.
Economics - If you are a larger merchant processing tens or hundreds of millions of transactions then you don’t want to pay per transaction fees. A non-gateway like Tender Retail or switch like ACI provide favorable economics with flat monthly fees.
Flexibility – some merchants want much greater flexibility than a out of the box solution a gateway can provide. So they may opt for developing some components inhouse and obtaining others from processors. Also, some gateways require use of their payment terminals. Non gateways can allow you use your own or mix/match devices.
End to End – tradition gateway encryption encrypts a PAN from the payment terminal to the gateway and then decrypts before sending to processors…this could be referred to as point to point encryption. Some merchants favor end-to-end encryption where a PAN is encrypted from the payment terminal to the processor. This is an area where a solution like Tender Retail non-gateway would excel. So if you are with First Data, you can use TransArmor in both retail and ecom channels.
Reduce hops – all tradition gateways are hosted in the cloud. This adds a hop in the transaction flow. Some merchants prefer a direct connection to the processor. Solutions like Tender Retail and ACI are typically on prem deployments, leading to a direct connection to the processor.
Estate Management – remote management of payment terminals is critical if you have thousands of devices in your environment. If you want alternatives to device specific solutions like VHQ for Verifone devices and Estate Manager for Ingenico devices, you should explore device independent estate management solutions, like those offered by Tender Retail and Aurus.
As we discussed the business model for gateways, we wanted to illustrate a few scenarios in the simplest forms.
The first scenario is a large retailer with 10 million transactions per year. They were offered 4 cents per transaction by Vendor A. However, vendor B has a different pricing model, and just charges a flat 25,000 per month or 300,000 per year. In this scenario, Vendor B is 25% cheaper and provides $100,000 per year in savings, while preserving additional savings as you grow your transaction volumes.
Scenario 2 is a mid-market enterprise client with 1 million annual transactions. They were offered 6 cents per transaction by Vendor A, but vendor B