How to Choose the Right Payment Gateway for your Business
What is a Payment Gateway?
If you do business online, whether as a merchant or customer, then you are sure to have heard the term "payment gateway." It is the process through which e-commerce uses an automated application to authorize a charge on credit cards or other payment sources for products and services provided.
Payment gateway, however, does not only apply to online businesses but also physical stores that use card payment options. A payment gateway is generally offered to the customer via their payment bank but can also be through a 'third party' source known as a payment service provider. The payment gateway transmits transaction information between payment portals such as a website or phone and the payment source (bank).
How does a Payment Gateway work?
A payment gateway has made doing transactional business online easy and convenient. But, for those who are wondering how the process works with a payment gateway, here's how:
- The customer makes an order through a website, app, or via a POS system, which immediately encrypts the information (that was entered in the payment details by the customer) and then proceeds to transfer it to the merchant's webserver. This process is done through a Secure Socket Layer (SSL) encryption.
- After the merchant receives the payment instruction, they would then send it through their payment gateway via an SSL connection. Once the data is recorded, the information would then be transferred to the merchant's bank, who prompts a payment request from the bank that initiated the original data (customer's bank). When the data is validated and processed, which takes only a few seconds, the payment will be transferred to the merchant's account.
Should there be an error at any stage of the process, a corresponding message will be sent to both customers and merchants about the issue. Also, after recording the relevant data, there may be particular payment requests that still have a "not-cleared" status, and as such, the merchant may submit a "release" request, which initiates a prompt to the bank to have it cleared.
Types of Payment Gateways
Transactions between business and clients these days have gotten easier and much more convenient due to the implementation of payment gateways. Gone are the days when businesses solely depend on direct bank transfers to receive payment to provide goods and services.
But why use payment gateways? They provide a sense of credibility for merchants in providing services to their clients, security for online use of your data, flexibility in payment, and so much more. When choosing a payment gateway, you should consider the type of business you are operating.
Also, you may need to consider how much control you need to have over payment as well as how many customers should have. There are currently four (4) types of payment gateways available, namely:
Hosted Payment Gateways
With Hosted Payment Gateways, customers are redirected from the business main website page to the company's checkout page. Once on the checkout page, the customer will be initiated to click a link that will direct them to the Payment Service Provider (PSP) page. While on the PSP page, the customer will be prompted to enter their payment details and, in some cases, log in details if they have an account with the PSP. As soon as the payment request is validated, the customer will be redirected to the checkout page to finish the process. By far, Stripe is considered as one of the most popular and reliable hosted payment gateways. But what are the positives and negatives of using the hosted gateway option?
- Hosted Gateways provide a level of security for customers as it is PCI compliant and protects against fraudulent activities.
- You can customize this payment gateway, and it is easy to use and setup, and the signup processes are generally simple and hassle-free.
- Merchants are not able to control all transactional activities as hosted gateways are externally connected.
Self Hosted Payment Gateways
Self-hosted payment gateways are somehow completely controlled by the merchant in that customers are required to submit payment data through the business's website. When the data is collected, it goes through a phase of encryption as some of these gateways require the data to be sent in a particular format (such as including a secret key). One popular self-hosted payment gateway is used on Shopify, which is Stripe-powered. The pros and cons of self-hosted payment gateways include:
- All transactions are completed in one place
- The merchant controls the entire payment process, and it is customizable
- There is no technical support system, so should anything go wrong, you would have to sort it out on your own or hire a personal tech to have the issue resolved for you (this option can be costly).
API Payment Gateways
Application Programming Interface (API) allows customers to enter their payment details via credit or debit cards on the checkout page. The payments through these options are made through API processing.
An API is a messenger that takes requests and tells a system what you want to do and then returns the response to you. A payment gateway API makes the payment processing a lot easier for the merchants. An API helps in easy integration of payment gateway to the website; all one needs to do is to enter two to three lines of code into your website. Anyone with a little bit of technical knowledge can easily integrate a payment gateway to their website with the help of an API.
- It can be used on a variety of different platforms including Smartphone’s and tablets.
- It can be customized to provide customers with a better User Interface (UI) and User Experience (UX).
- Merchants are fully responsible for creating secure options for their customers' financial information submitted through their sites.
Local Bank Integration/Direct Payment Gateway
This payment gateway option involves the integration of a customer's local bank in that when opening a payment form, they are redirected to the bank's website. Once on the site, they are prompted to enter their payment details as well as contact information. When the payment is initiated, they will be redirected to the merchant's website. A confirmation notice will be sent once they are back on the merchant's website. A few pros and cons of this site include:
- It is great for small businesses as well as great for businesses looking for a one-off payment scheme.
- It does not allow recurring payment and, as such, would not be ideal for larger businesses or wholesalers. This option only offers basic payment features and does not allow returns.
How to Choose the Right Payment Gateway?
When choosing a payment gateway, there are certain factors you need to consider, as it will help to determine the overflow of your business. When opting for a payment gateway, here are a few tips to keep in mind:
Ensure the Payment Gateway Provider does not restrict or prohibit your product or service
Not all payment gateways work for every business, and as such, you need first to research if the relevant gateway supports the goods and services you offer. Each payment gateway has a list of permitted and banned services they do and do not support, some with reasons for their refusal to support. Also, the payment gateway may ban certain services based on the region you are located in. Take, for instance, Paypal, they do not offer their services in certain countries, and as such, they do not permit any form of transactions for goods and services in that region. It will surely be a waste of time to add it to your website to learn later it cannot be used.
Multiple Currency Support
This factor should be one of the most critical when searching for a payment gateway to add to process payments for your services, especially if you are offering goods and services in various regions. In most instances, customers shy away from businesses that do not have multiple currency support because exchange rates can be high. Having a multi-currency option will build greater customer experience, expand your business, and provide ease of payment for both customers and merchants. Mostly three or four currencies would be great, especially if they are widely used (USD, GBP, EURO, etc.).
Necessary Payment Processing (Credit Card, Debit Card, Net Banking)
When choosing a gateway, you need to be mindful of the payment processing options, especially as it relates to credit or debit cards and net banking. Customers want to rest assured that the processing phase will be seamless, and they have no issues to deal with at the end of the day. Also, even though you offer the option to pay via cards and bank accounts, are their systems in place to deal with any potential delays, decline, or possible double-charging?
Being PCI compliant is important when looking for a payment gateway to add to your online business. You want to build that level of trust and confidence with your customers to know their data is safe with you, and no transactions will be made that are not initiated. Credit cards are critical tools in an individual life, so if the payment gateway you are reviewing does not comply with the regulating authority, you may want to opt-out. The guidelines are security points through which gateways must agree to adhere to card protection.
Pricing and Charges
You need to look at the pricing and charges for the payment gateway you are implementing in your website transaction processing. A lot of the gateways charge a subscription system where you have to make recurring payments for them to host and redirect your payment data. As such, you want to review their pricing and charges as this will help to determine the changes made to customers via these gateways (customers are not charged by the gateway directly but by merchants who have to pay a fee to complete the transaction and which is partially incorporated in the final charge to clients).
Does the payment gateway you use have a high level of security for both merchants and customers? Security is an important feature to assess in full as customers' personal information will be added to your site and also sent through these gateways. Will they be protected from potential hackers or those seeking to create a breach on your website's checkout platform? One way to find out is by running relevant tests and assessments with the gateway before launching it in full on your website.
Seeing both merchant and client information will be sent over these gateways, you want to utilize the services of one that has an effective and efficient customer support system. Should anything go wrong or you have a concern, one must be able to contact the team to have the issues resolved. Also, choose a gateway whose customer service can provide prompt responses to have your trust concerns intact with your customers.
Popular Payment Gateway Providers
There are numerous types of payment gateway providers available to choose from to make transaction processes smooth for both clients and merchants. These providers are efficient in providing quality service, security, flexibility, and ease of use for everyone. Some of the most popular types are:
Stripe provides flexible tools that help to enhance payment processing for internet businesses such as recurring or subscription payment plans, crowdfunding platforms, and other high-demand online sites. Stripe is used by millions of technology companies around the world as it provides a high-level of security in addition to fraud prevention.
Pricing and Setup Fees - Stripe does not charge a setup fee or monthly fee and does not have any other hidden fees. However, should you use this payment gateway, there will be a 2.9% charge in addition to $0.30 for every card payment that goes through successfully.
Paypal is by far one of the most popular payment gateway providers available as it is more accessible than most others and also in more countries than many other providers. It has been operating since 1999 and accepts credit and debit card payments. With Paypal, online users can add their credit or debit cards as well as bank details to make online payments without merchants having direct contact with their funding sources.
Pricing and Setup Fees - Paypal does not charge a fee to buyers' payments nor for those creating an account with them. However, merchants are charged a 3.4% in addition to $0.30 for card transactions. There are no monthly fees, gateway fees, or setup fees.
Since 1996, Authorize.net has been providing payment gateway solutions to hundreds of thousands of online merchants across the globe. Authorize.net accepts payment through credit cards and electronic checks (e-check). It is simple and straightforward to use and is a great option for large online commerce stores and service providers.
Pricing and Setup Fees - Unlike many of the other payment gateway options, Authorize.net charges a setup fee of $49 with a recurring $29 for monthly gateway fees.
Payment gateways are an innovative way of doing business online and are also efficient in creating flexibility and ease of payment for goods and services. They offer a level of security for merchants and customers to safely conduct business transactions online without having to worry about fraud or security breaches.