Why Merchants May Need Multiple Processing Relationships

card payment smartphone

FinTech firms are keeping tabs on the optimization curve of eCommerce merchants — and how their payments needs evolve. Merchants might start with an off-the-shelf eCommerce platform and use that company’s payment solution. Alternatively, they might build their own websites and use a payment processor geared toward online businesses. And then they might quickly realize that they should add a new digital payment method because a lot of customers are tapping into that option. That is “well and good for a while,” Modo Chief Revenue Officer Brian Billingsley told PYMNTS in an interview.

Merchants then may have, say, unique needs depending on their product and market. They may discover that they are getting a lot of volume from Canada or that other English-speaking markets are often hitting their website. A merchant might want to launch in Europe and realize that rates differ from one processor to another. It also might start selling in Northern Europe and realize that many people don’t like using cards: They might want to use an invoice or a product like Klarna instead. They may undergo this almost organic optimization, where Billingsley said it’s almost like “opportunities find them.”

But as merchants keep ramping up that optimization curve, Billingsley said, the more they optimize it becomes exponentially harder to keep squeezing out value. Merchants may be either trying to drive acceptance, ensure that new customers have they payment methods they want, increase authorization rates or lower costs. And, when it comes to the importance of having multiple processors, Billingsley pointed out that some merchants have had significant outages and weren’t able to route traffic to other processors. Target, for instance, recently faced a register outage, which meant it couldn’t process cards or other forms of payment. And online marketplace Etsy experienced a service disruption in 2016, which impacted a significant number of Etsy transactions.

Several large merchants are currently working with the FinTech firm, and they are live and all have different reasons. A company, say, might be adding local payment methods to help them in different markets. With a domestic U.S. focus, a merchant might want to add secondary and tertiary processors for both backup purposes as well as to start becoming more competitive or allowing processors to become more competitive.  Some very large merchants are famous for going into their quarterly business reviews and saying to processor X that they missed some SLAs and that the company is going to shift, say, 30 percent of their volume to processor Y for the quarter and see how it works out.

While Modo is not a processor as it doesn’t hold, touch or move money, Billingsley points out the company wants to make sure that merchants can allow processors to compete on who is the best. Billingsley said it’s here to help merchants execute on the strategy that makes the most sense for them. And, through Modo’s dashboard, companies can turn processors and other payment service providers on and off with the click of a button. After entering their credentials for a processor, they can route transactions based on the least cost and switch processors, among other options, in the age of FinTech innovation.


New PYMNTS Report: Preventing Financial Crimes Playbook – July 2020 

Call it the great tug-of-war. Fraudsters are teaming up to form elaborate rings that work in sync to launch account takeovers. Chris Tremont, EVP at Radius Bank, tells PYMNTS that financial institutions (FIs) can beat such highly organized fraudsters at their own game. In the July 2020 Preventing Financial Crimes Playbook, Tremont lays out how.