Ignoring composability? Everyone’s paying the price

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Paul Anthony Co-Founder, Primer
4min read

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'Composability is the ability to combine digital assets and their corresponding behaviours in the world of web3.' - How web3 is shaping the future of finance, 11:FS

The world of payments is fraught with fragmentation and warped incentive structures. Merchants’ payment acceptance costs are expected to rise by up to $15bn as commerce migrates to higher-cost digital channels.

This is largely down to payment companies’ archaic wish to capture (the mythical) 100% share of the checkout. But it’s a Pyrrhic victory, resulting in stalled growth and fewer payments overall, as merchants go global and try to meet ever-changing consumer demand.

As I’ve previously worked for PayPal’s Braintree, I know this firsthand. I helped the sales org close many of their larger strategic opportunities.

Very few merchants nowadays will use a single payment service provider for all their payment needs. Instead, they’ll leverage a number of providers to gain greater reach and flexibility, reduce costs and exposure, and ultimately boost their payment success.

Typically, mid to large enterprise merchants will maintain payment roadmaps spanning 18-24 months. This would involve integrating new providers and services not just across payments, but commerce as well. Think alternative payment methods like BNPL and crypto, fraud tools, tax calculation services, KYC, payouts, logistics and fulfilment, accounting and many more.

The payment and commerce lifecycle should now be seen as a sophisticated software application, requiring a plethora of third-party services and libraries, like any modern app. If each library comes with odd caveats, weird coupling and incomplete interfaces, you’d need to reevaluate your efforts every time you want to expand your repository, or else development grinds to a halt. If you work in payments, this will sound extremely familiar.

As capabilities like presentment of checkout, payment methods, card storage and 3D Secure (3DS) are tightly coupled with underlying processors, it’s incredibly difficult for merchants to build their ideal payment experience and commerce flows today.

the duplication of engineering effort is wasteful, costly and dramatically reduces flexibility, making it impossible to optimise.

This tight coupling creates a highly fragmented experience, where the merchant cannot guarantee a consistent journey across all users. What’s more, the duplication of engineering effort is wasteful, costly and dramatically reduces flexibility, making it impossible to optimise. The result? A poorer customer experience, operational inefficiency and slow progress in expanding to new customer bases and markets worldwide.

A perfect example of this is 3DS. With PSD2 and SCA now in full force across the UK and EEA, it’s a hot topic. Keep in mind, this is a completely independent protocol for authenticating customers with their issuing banks.

Still, payment processors choose to couple 3DS implementations with their software libraries, blocking merchants from bringing their own plug-ins (MPI) to the table. So, even if they’re managing their own storage of card data and have the capability to build their checkout, merchants are forced to integrate with the processors’ checkouts to authenticate customers and take payments.

As an alternative, many processors have launched, or are launching, their own ‘decoupled 3DS service’. This allows merchants to authenticate with 3DS using their software and pass this data to other processors, who also prevent merchants from passing 3DS data, and have their own ‘decoupled 3DS service’...


There’s no excuse for this. 3DS data doesn’t need to be coupled with the underlying processor. This ultimately results in bizarre incentive structures that have nothing to do with serving merchants and improving customer experience.

The ripple effect of a disjointed payment infrastructure includes extraordinary added costs on the finance side. Any company aiming to be a top performer in the next decade knows that data and reconciliation must be prioritised. Unfortunately, comprehensive reporting and visibility of financial data seem to take a backseat on payment company roadmaps.

It takes far too long for payment processors to close large merchants and get them live. It’s the processors’ number one pain point bar none.

Merchants are left to navigate a black box—with no idea what they’re paying for and how much they’re paying for it. At best, this data is incomplete, and at worst, misleading. Enter the reconciliation team in merchant organisations, who have to wade through huge, complex datasets, consolidate them into one source of truth, and pull their hair out as they try to close the books at end of day.

Now, for the irony: It takes far too long for payment processors to close large merchants and get them live. It’s the processors’ number one pain point bar none.

Having worked with hundreds of the world’s largest merchants on their payment integrations, I know this isn’t due to lack of appetite on the merchant side. Merchants want to build and curate their own payment and commerce stacks; they deeply understand that this is the key to real growth and payment success.

Payment companies’ lack of composability forces merchants to make significant compromises, such as who they serve and when. The outcome: Fewer overall payments and less volume for processors.

My unfiltered opinion

Merchants are more sophisticated now than ever, and they understand each component of the payment lifecycle, leading them to seek greater composability. The antiquated walled garden approach from payment service providers is actively preventing growth and blocking reach for customers, merchants, and the providers themselves. Everybody suffers, and for what?