Payment gateways are the logistics backbone of online commerce, says Peter Harvey of PayGate – and enterprises should think twice before trying to develop or manage their own, in-house versions.
“There’s a tendency to think of setting up a payment gateway as an IT project,” says Harvey, “but in fact it’s a complex financial and political project as well. Attempting to develop a gateway from scratch exposes enterprises to significant risks which are not always properly understood. The costs can get out of control very quickly.”
The single most important success factor, says Harvey, is “the quality of the gateway’s relationships with the banks – and those can take an extraordinarily long time to develop. If you’re lucky you’ll catch a bank in the middle of a project that means they can slot in a link to your system fairly easily, but in our experience, you can wait years.”
Before committing to developing a new payment gateway, argues Harvey, enterprises should at least consider the alternative of white-labelling an existing gateway. “To build and commission a new gateway from scratch can take years and significant capital investment,” he says. “A white-labelled version will typically take only a couple of months. You’re far more likely to get what you need, at a fraction of the cost”.
One of the most significant sources of complexity is the need to develop global relationships, he says. “The minute you want to do business outside the borders of South Africa, the task of processing payments becomes radically more complex. You start needing to deal not only with different banks and different languages but also different local tax and legal regimes.”
This is especially true when opening up new territories such as the rest of Africa, he says. “Establishing trust relationships with African banks, and getting them to open up to the idea of supporting online commerce, is a slow process. We believe this is where the benefits of piggy-backing off an existing system will be greatest.”
Even within South Africa, says Harvey, the task of meeting complex compliance and governance requirements should not be under-estimated. “The banking, credit card and financial services is highly regulated, with good reason,” he says. “Developing within those constraints takes considerable expertise and experience.”
There’s also an advantage to spreading the cost of back-end infrastructure across many customers, he says. “A payment gateway, especially one that’s serving a global customer base, needs to be absolutely reliable,” he says. “Even five minutes offline can cost millions. Building and maintaining the systems to deliver that level of reliability is expensive.”
Another advantage of white labelling, he adds, is that enterprises retain their own branding and business processes – while being able to hand off the entire task of payment processing. “In one case we have a client who also wants to establish their own relationships with banks in each territory they cover – that’s an important part of their business plan. But they don’t want to build the physical links themselves as it would take too long and be far too costly. It’s not their core business. Using a managed gateway service gives them the best of both worlds.”