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Should your business go for an open or closed payment platform?

8
Aug

Online businesses, especially ones experiencing hypergrowth, are continuously facing challenges which all stem from the expansion of E-commerce in general. Just to give an idea of the magnitude of the phenomenon, in 2018, consumers worldwide made online purchases valued at a whopping $2.86 trillion, up from $2.43 trillion in 2017. These numbers are predicted to grow even more radically, with $4.8 trillion in sales projected for 2021. And it’s not just the volume: payment method complexity too is growing as end-users demand to pay with localized e-wallets like Alipay and WeChat in China or PayTM and Mobikwik in India. Online businesses have to think about their payments presence in new and emerging e-Commerce markets like Brazil, Indonesia and the Philippines. They need to be prepared to scale, diversify and re-globalize their payments constantly. In a world of hypergrowing payments, it’s easy to see the importance of choosing a payment platform. Hypergrowing merchants need a platform that can handle all of this diversity, change and scale. An important question to ask is: what is my payments strategy? Do I value a hands-off, uncomplicated approach that will keep my payments activity simple? Or do I prefer a hands-on, more flexible approach that allows me more control and visibility over my payments activity?Closed payments platforms are generally simple. They allow you to “plug in and go”. The benefits of closed payments platforms are like those of a ready-made suit: they are simple, less fussy, and utilize trusted industry best-practices. The downsides are, like a store-bought suit, that they may not always fit quite right, and alterations are much more difficult, if it all possible, to implement. Open payments platforms, on the other hand, are generally more complex. Like a custom-made suit, an open payments platform is more readily tailored to the specifications of the customer. The online business that chooses an open payments platform generally has more control over their payments activity -- but this comes at the cost of time investment. A useful technological comparison is the well-known debate between Android vs. iOS. Android, the more open operating system of the two, offers more customizability and flexibility, and is a good choice for a customer who has specific, niche needs. iOS, on the other hand, is a good choice for a customer who wants a device that operates according to industry best practices and doesn’t have unique or unusual needs.



Open Vs. Closed: Key Features

More control vs. easier configuration


Closed payments platforms have the benefit of simplicity. As an online business who has chosen to work with a closed payment platform, you won’t have to worry about too many options and choices. Many times, the options won’t even be visible to you! Because closed payments platforms value simplicity, configuration is often not accessible to the business owners. This often means that businesses have to undergo a bureaucratic process whenever they want to perform any changes to the payment strategy of their business. Because closed payments platforms do not expose configuration options to businesses, the process of enacting a change often involves requesting the change, explaining the change, and waiting for the change. Adding a new payment provider or eWallet can take a long time. Creating a new report and harvesting your business’s own payments data may be difficult, costly, or impossible. Modifying your payment routing can take a long time, and you may not even be privy to view your business’s behind-the-scenes configuration -- just because the closed payments platform is not equipped to display it to you.



Open payments platforms, on the other hand, allow you to create your own settings for your business. Usually, you’ll use a dashboard to add new payment providers, and to test these payment providers. You’ll be able to configure backup providers in case of downtime and block unwanted payments from entering your system. You’ll be able to use another dashboard to create your own payments routing schemes, and yet another dashboard to define and generate reports based on your data. The upside is that you have full visibility, control, and instant access to your payments’ scale, diversity and expansion. The downside is that it’s time-consuming, it’s a lot of responsibility and you have to know what you’re doing.


Better acceptance rates vs. simpler acquiring scheme


In the name of simplicity, closed payments platforms often offer only a single acquirer. This common fact is important to mention since credit card and debit card payments make up 70% of all online payments. 100% of credit and debit card payments are routed through an acquirer on their way to approval. In order for a payment to be approved, the acquirer has to approve the payment. And that’s where things become tricky. Different acquirers have different acceptance rates for different payment types. American acquirers, for instance, tend to approve more American-issued credit cards. European acquirers tend to approve more European-issued credit cards and reject other credit cards. And other acquirer biases exist, biases that relate to transaction amount, specific credit card BIN numbers, the reputability of your business in the acquirer’s eyes and so on.So if, for instance, you have chosen a closed payment provider who works with a single American acquirer, it means your European payments are subject to suffer high rejection rates. On the other hand, an open payment provider will usually offer a wide variety of acquiring banks. An open payments provider will allow you to decide which of your traffic to send to Acquirer A, and which of your traffic to send to Acquirer B. It will also give you the tools to analyze which of your acquirers is performing best for which transaction types. By optimizing credit and debit card traffic distribution between best-performing acquirers, online businesses can improve acceptance rates by dozens of percents. And for a hypergrowing business, even 1% of improvement can mean millions of dollars to your bottom line. A good question to ask here is: how diverse is my business? How globalized is my business or how globalized do I want it to become? Can my payment platform of choice support my international, diverse acquiring needs?

Freedom of tokenization vs. clunky provider migration

One of the most annoying and time-consuming steps of the checkout process is the credit card input step. As an online business, you are aware of the importance of the seamlessness of the checkout page. Ideally, you’d like the customer to input their credit card once -- just once -- and have it saved for all future purchases. But what happens to the credit card information when, behind the scenes, you migrate to a different payment provider or acquirer? Each payment provider or acquirer requires their own credit card token, which is an encrypted representation of a credit card in their systems. In case a closed payment platform does provide the option to work with multiple providers or acquirers, they haven’t always thought about the technical necessity of transferring credit card tokens from one provider to another. Because closed payments systems are often more clunky when it comes to accommodating change, they will often cause your end-users to re-input their credit card details when making a purchase through the newly added provider. This may not only cause your end-users additional hassle at the time of purchase, but may necessitate your developers to modify the code of your checkout page to accommodate specific types of returning customers. Because open payment platforms are naturally geared towards change, they have usually anticipated the issue of credit card token migration and have provided a technical solution for it. This means that for every new user that inputs a credit card in your store, the open payments platform will create a “universal token” that will prevent your end-users the hassle of re-inputting their credit card number after you’ve migrated from one payment provider to another.When selecting a payments platform, make sure to ask about tokenization to anticipate possible headaches and hassle. What scenarios will cause my end users to need to re-input their credit card numbers? Does my payments platform of choice offer a “universal token”? What are the implications of switching between payment providers (if doing so is even a possibility)? To learn how tokenization works at ZOOZ, check out our documentation

Custom analytics vs. no-hassle reporting


Because open payment platforms are designed with customizability in mind, they often come with powerful analytic capabilities and widespread reporting visibility. Open payment platforms don’t assume that they know businesses’ needs best; instead, they tend to offer a wide range of flexible data features that allow businesses to explore their data. Many payment platforms offer creative and wide-ranging access to your business’s payment data, allowing retrieval of the data via API requests and/or custom UI reporting. Sometimes they will also offer out-of-the-box analytic dashboards, but it’s not their focus or forte. ZOOZ, for instance, in addition to a basic dashboard of analytic presets, allows the creation of infinitely flexible customizable reports. You can view your data in any number of ways, according to a wide variety of variables: cardholder IP country, cardholder issuing country, BIN number, card brand, amount, transaction status, and literally dozens of other variables. You can even create reports that track custom variables that you submitted with your payments (if the customer is a VIP customer, for instance, you can send a VIP “tag” in their payment requests and then track VIP customers via the reporting features). You can invent any KPI imaginable and then track it precisely and effectively. And because you are in charge, the process is instantaneous and free.

The caveat: you need to know what you are looking for.

Closed payments platforms generally come with a limited number of reports out of the box. These reports typically include transaction number and transaction volume reports, and basic acceptance rate reports. You will be able to use a UI to search for specific transactions. The rest of report offerings vary widely from provider to provider. Sometimes, closed payments platforms will be able to generate custom reports for you. This will typically require manual work on the payment platform’s part, and can take a long time and cost a premium.Before choosing a payment provider, consider the following: What are my payment KPIs? What data points do they involve? What reports do I need to analyze this data? Does my payment provider allow me to generate these reports by myself? If not, can it be done on special order, and how much will it cost?

So should I go with open or closed?


Choosing a payment provider depends on your hypergrowth payment strategy. If you have a set payment strategy for the next few years, and you don’t have the personnel to optimize your payments on an ongoing basis or alternatively that your current business does not require juggling between a multitude of providers and payment methods, then you can opt for a closed payments platform that fulfills your current and projected needs. However, if your payment strategy is not set in stone, and you would like to accommodate a wide variety of globalization and diversification opportunities, consider an open payments platform. If you are a data-curious, data-driven company that recognizes the power of harnessing your company’s data to optimize your payments, then open payments platform will be your optimal solution. 


A few more interesting reads

International Payment Preferences part 1

International Payment Preferences part 2

Six Ways to Increase Your Approval Rate

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