Modo CEO, Bruce Parker, discusses a core piece of payments technology, the Payments Switch. Read below, or watch the video above to learn about payments gateways, where they are going, what their limitations are, and how Modo can help you take your switching technology to the next level.
What is a payments switch?
A payments switch is like the original gangsterof payments software. So that’s the piece of software that’s
been sitting around for a long time, actually everywhere in the payments ecosystem. There are switches at banks, there are switches at Visa and Mastercard, and then there are switches at a number of very large merchants. Sometimes people have actually has their own, and other times the payment service provider actually had the switch which maintained interactions, or routes, between various payments that places could be processed.
A payments switch is specifically focused on processing payments so it doesn’t do anything about settlement and reconciliation. It doesn’t really help with things like reversals, expectations, or disputes. Sometimes it will process the transaction for a refund, but in general, a switch knows about how payments are processed, or transacted. It doesn’t really know about how payments result in money movement or are accounted for.
Which payments switch is right for me?
In today’s world, deciding about a payments switch is usually about deciding about broader questions about how payments software and payments technology is going to be managed within your organization. So the vast majority of organizations, certainly in the last several years, let’s say ten years, have actually made all of those decisions
by deciding on their payment services provider. There is a new move afoot to say, "Well, I might be an organization who's large enough to want to control my own infrastructure and really make a lot of decisions about how payments work in my organization, but I also am not willing to do all that work myself." If we look at somebody like an Uber, or an Airbnb, or a Lyft, or a Netflix, they’ve spent a tremendous amount of time and energy building out a payments infrastructure that they own operate and control, but they did that themselves. The vast majority of them didn’t use
a product from a vendor. We're now seeing a number of entities coming to marketplace who would be classically considered enterprises, would be classically considered within the Fortune 50, within the Global 1000, as organizations that may not be quite as aggressive about things like payments as Netflix has famously been. So, that hasn’t been served very well to this point in the vendor marketplace, but we do think that that’s changing.
How is Modo similar to a payments switch?
Modo is somewhat like a payments switch in the form of maintaining not only multiple connections, like a gateway, but also allowing you to route between those connections. So Modo’s platform allows you to figure out, “Where do I want to send a transaction? What am I doing this for? And what’s actually the best for me, as the client, who's controlling how this experience is going to be delivered to our customer?” Modo enables clients to perform intelligent routing. We’re able to figure out least-cost. We’re able to do failover. We’re also able to just simply add multiple forms of payment - things like loyalty, things like gifts, offers, other things that a large organization may want to include in their payments experience, precisely to make it differentiated. Switches actually haven’t been invested in or innovated around for a very long time. And those who have built brand new infrastructures typically haven’t offered them for sale. Those have been very large technical organizations
within another fast-moving, fast-growing startup, like a Netflix, like an Uber, like an Airbnb. We believe that Modo is a unique offering in the marketplace in that it’s a modern, built from the ground up, in the cloud, payments infrastructure using all of the latest and greatest technologies, using the best-in-class security, but that is also available for others to use. It’s offered in the cloud as SaaS, precisely so that other people can have the benefits of a world class payments stack, or as we like to say, a bank-grade payments stack.
Routing is important because capitalism works. Markets matter. And when people make decisions, particularly over a very long period of time, to sole-source with one vendor, it doesn’t always end well. We’re seeing more and more conversations with very large organizations who made commitments to other very large organizations in the payments world kind of coming to the point of either a separation or at least some time apart or some options. And ultimately what we believe is that if
a large organization has control over their own payments flow, has control and the ability to route between different payment service providers, they’re going to get the best outcome. They’ll get better service, they’ll get better price, and they’ll ultimately get better experiences.
Modo can offer a series of [routing] options ranging from the very simple, like failover, (which I otherwise refer to as bump-your-head routing), round-robin - so we can just start distributing transactions amongst a number of providers based on several criteria. A little more sophisticated is something we call assurance - which helps people think about the problem of soft-declines, which are endemic in our industry. They're very difficult in customer not present environments, but they’re now showing up more often in customer present situations as well. And this would be when a card is declined
even though it's a good card, a good customer, and a good transaction. Being able to think about non-correlated payment service providers, non-correlated processors and route between them at the moments that it makes the most sense to make sure that you simply get the payment done and close the sale. Even more sophisticated than that are the application of your volume, the application of big data and machine learning techniques to be able to consistently and constantly optimize. One of the key factors of being able to deliver that is an infrastructure that allows you execute payments routes without doing a whole lot of work, without redoing your plumbing. Using modern architecture, using modern technologies, we’re actually able to do that seamlessly, on-the-fly, at extraordinary volume and speed.
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