You may be wondering what is a payment gateway and how does it help eCommerce? A payment gateway is a service that processes credit card and other payments for online as well as brick-and-mortar shops. These transactions are facilitated by payment gateways by transferring the relevant information between payment portals like net-enabled mobile devices/websites and the bank or front end processor. Payment gateways play an important role in eCommerce transactions by authorizing payments between the customer and merchant.
What is the difference between a payment processor and payment gateway providers? A payment processor evaluates and transmits transaction information, while a payment gate software authorizes transfer of money between a buyer and seller.
How Does a Payment Gateway Work?
When a buyer orders online, payment gateway providers carry out multiple tasks to authorize the transaction:
- Encryption: The web browser encrypts the information to be sent to the seller’s web server. The gateway then transmits the transaction information to the payment processor used by the seller’s acquiring bank.
- Authorization request: The payment processor transmits the transaction information to a card association. The credit card issuing bank analyzes the authorization request and either approves or declines the transaction.
- Order filling: The processor transmits an authorization to the payment gateway. After the gateway gets this response, it sends it to the online store/interface to process the payment. Here, an appropriate response is produced. This complicated sounding process only takes a few seconds. After getting approval, the merchant finalizes the order.
If you’re unsure about how payment processing works there is also a great guide on Payment Gateway vs Processor: What is the Difference? that you can read to clarify things.
Other Functions of a Payment Gateway
To minimize fraudulent transactions, the best payment gateway solutions use a variety of fraud detection features including:
- Identity morphing detection
- Velocity pattern analysis
- Computer finger printing technology
- AVS checks
- Delivery address verification
In addition, payment gateways also calculate tax amounts to authorize transactions sent to the processor.
How to Select a Quality Payment Gateway
Online stores are similar to brick-and-mortar shops in many ways. Both need to tackle supply-chain issues, manage national and local tax codes and regulations, and monitor their books closely. Plus, both make use of shopping carts and a point-of-sale (POS) system. While most brick-and-mortar shops use a cash register or iPad to process payments, online stores use a payment gateway for the purpose. Most payment gateways accept credit card, debit card, and PayPal payments. To select a suitable payment gateway, you need to consider issues such as cost, integration, security, and support, among others. In this section, we give you useful tips on how to choose the best payment gateway for your needs.
By the way, if you’re from the Philippines you may want to check out this Top 3 Payment Gateway Providers in the Philippines article for some useful options.
Cost is an important factor for cash-strapped businesses. You need to consider several costs here. First, there is the startup cost of setting up your merchant account and configuring the processing service to your website or physical store. In addition, providers can charge in multiple ways for their services. These include a per-transaction charge depending on a maximum/minimum amount of monthly transactions, a steady per-transaction charge without taking into account the number of processed transactions, or a monthly payment plan that does not have minimum or annual commitments. Processing services also charge different percentages for each transaction depending on the payment gateway used, so understand all these costs before making your choice.
PayPal and Debit Card Processing
Many people are moving away from credit cards because of their high interest and annual fees. Debit cards and PayPal have become preferred payment methods nowadays. Therefore, select a payment gateway that supports debit card and PayPal payments. The advantages of PayPal are it allows consumers to limit their spending to a realistic amount and also provides reliable security for transactions.
Site Testing and Processing APIs
Generally, you can use standard code snippets in your website to get payment gateway capability. But if you wish to write your own custom code, you need to select a provider that offers processing APIs for the purpose. Plus, once you are ready to get cracking, the provider should enable you to perform site testing before you go live. This process allows you to do test transactions on your site and the processing engine without using money. You can easily identify issues and resolve them before going live.
Online fraud is on the rise and it is important to ensure a high level security for all transactions on your site and store. The best payment gateway systems offer data encryption, and support for CVV2 verification, transaction billing address, and VeriSign SSL certificates. Plus, some solutions use complex encryption algorithms as well as limitations on data stored and sent. Do not think these advanced security measures are a headache as it is essential that you leave no stone unturned to use the latest and best security standards to provide peace of mind to your customers and to ensure your business does not face any losses due to fraud.
It is important to get your issues resolved promptly to ensure business continuation. Providers offer a range of customer service options from 24/7 telephone support to email support with a 24-hour response time. For in-depth customer support, you would be charged more. So, do your homework carefully and select the right option for your needs.
More Selection Questions to Consider
A consumer survey reveals that 50% of online buyers will cancel their purchase if the store does not provide their preferred payment method. Plus, 40% feel comfortable buying from an online retailer that provides multiple payment methods. A convenient and fast checkout is essential to improve the user experience of online stores. Ask the following questions while you select the payment gateway:
How does the gateway improve the checkout user experience of my store?
The right payment gateway can improve the checkout procedure by speeding it up. Some gateways auto-populate customer information and facilitate one-click checkout. It is important to make the checkout process seamless as it decides whether the sale is completed. Therefore, make the checkout process painless and easy for customers so that they return for more purchases at your store.
Does the gateway integrate with my existing platform?
This is important because if the payment gateway that doesn’t offer an existing application or plugin for your platform, you may have to do a lot of custom development for the integration. This will cost you a lot of money and time. Plus, you will have to extend the customization of the checkout to other channels on your platform. Therefore, avoid all the headaches by selecting a payment gateway that integrates smoothly with your existing platform.
Can the gateway grow with my business?
The gateway should be able to keep up with your business growth. For example, if your customers actively engage with your company on Twitter, you can offer them the chance to buy your products there. Stripe and Relay are two payment gateways that allow shopping on Twitter. Therefore, select a payment gateway that is innovative and gives you the confidence that it can scale and keep up with your business growth.
Comparison of Popular Payment Gateways
Now that you have learnt about the basics of payment gateways and know what features to look for in them, let’s take a look at 7 popular gateways that you can consider for your business:
Adyen promises streamlined and hassle-free payments, and is also noted for its innovative working policies. It replaces the conventional credit card-PayPal combinations with advanced one-touch/mobile payment methodologies. This gateway facilitates online payment via mobile and local devices, and guarantees you will receive your money in time from buyers who may be anywhere in the world. Fraudulent transactions are minimized by the sophisticated Revenue Protect feature.
- Supported platforms: Amadeus, Magento, Hybris, Cegid, Navitaire, Ebizmarts, Salesforce, and more.
- Processing rates: There are no fixed enterprise pricing plans, but Adyen charges a calculated processing fee and commission per each transaction. The fee and commission depend on the payment method you are using.
- Contract: There are no fixed contracts.
- Prominent clients: Spotify, Mango, Uber, and more.
Braintree was launched in 2010 and has since become a leading payment gateway. It has been acquired by PayPal and now functions as a PayPal company. Besides processing conventional online payments, this gateway accepts payments from PayPal, Android Pay, Apple Pay, Venmo, and even Coinbase (bitcoin).
- Supported platforms: Shopify, WooCommerce, Spree Commerce, Magento, Bigcommerce, and more.
- Processing rates: There is a 2.9%+ $0.30 transaction fee (after first $50,000), and a $15 chargeback fee.
- Contract: You don’t have to worry about any contract requirements, and you can take with you all your customer data for free.
- Prominent clients: Casper, Uber, Airbnb, Bonobos
Stripe’s stated goal is to make it easy for companies to do business on the web. Their unique appeal lies in the fact they are designed for developers, not merchants. If your business captures sales in non-conventional ways such as through subscriptions, marketplace, and third-party apps, then Stripe should be perfect for you. Stripe recently introduced Atlas, which is designed to help global entrepreneurs break geographical barriers while carrying out worldwide operations.
- Supported platforms: Spree Commerce, Magento, WooCommerce, Shopify, Bigcommerce, and more.
- Processing rates: There is a 2.9% + $0.30 fee (after first $1 million), and a $15 chargeback fee.
- Prominent clients: Lyft, Task Rabbit, Fitbit, Harry’s, and more.
Authorize.Net has been around since 1996 and has garnered a sizeable portion of the market share in payment gateways. It provides standard features such as simple checkout options, subscription capabilities, and fraud protection tools. Plus, the gateway has a user-friendly interface and enables you to make your security settings granular which is a bonus for your developers.
- Supported platforms: Magento, WordPress, Volusion, Shopify, Bigcommerce, and more.
- Processing rates: There is a $49 setup fee, a $25 chargeback fee, and a $25 monthly gateway fee. The transaction fee is 2.9% + $0.30.
- Contract: There is a month-to-month option with no early termination charges, but if you go via a reseller, you may face a contract as well as termination fees.
PayPal was launched in the late 1990s and has become synonymous with web payments. They have acquired Braintree and Venmo, and separated from ebay to become a progressive company on their own. It is a recommended backup payment gateway solution because it saves time and is a great alternative to buyers who do not wish to use their credit card for all online payments. PayPal has more than 165 million registered users which means most of your target customers could have an account with this company. Plus, you can use it as a backup gateway and do A/B testing on the user-friendliness of your checkout process.
- Supported platforms: All. There is no need for platform integration as PayPal automatically redirects to its own site. For integration with PayPal Express, there is no redirect and the relevant info is offered by the Express API.
- Processing rates: Charges are 3.9% + fixed fee per international transaction, and 2.9% + $0.30 per transaction (with option for volume discounts). Add-ons may need other fees.
- Contract: There is no contract obligation and you can cancel any time. However, you need to comply with the user agreement.
- Prominent clients: Walmart, ebay, Best Buy, and more.
6. Amazon Payments
Amazon Payments was launched in 2007 and provides the same fast checkout experience as on Amazon.com. Like PayPal, customer transactions can be performed through this gateway without leaving your site. A big bonus is your customers get access to 1-click shipping options. This feature on the Amazon.com checkout greatly enhances conversions. Therefore, if your customers shop on Amazon, you can introduce this feature to speed up your checkout procedure and thus boost conversions.
- Supported platforms: Volusion, WooCommerce, Shopify, Magento, and more.
- Processing rates: The charges are 2.9% + $0.30 per transaction and a $20 chargeback fee. You don’t need to pay setup fees and fraud protection fees.
- Contracts: There is no contract and you can cancel your subscription any time.
- Prominent clients: Blick, Honest.co, Jockey, Patagonia, and more.
Another pioneer in the online payments industry, this company was launched in 1994. They are a global provider and have more than 150,000 clients in the US alone. The negative point is there may be cancellation fees depending on what agreement you have set up with your WorldPay rep in the beginning. Plus, though rates are lower, there may be charges and fees. Our research shows that their pricing model and interface seem to be a bit dated, so do your research diligently before opting for their services.
- Supported platforms: WooCommerce, Shopify, Spree Commerce, Magento, and BigCommerce.
- Processing rates: All of the below fees are provided for a “Limited Offer” period. There are also chargeback fees and a PCI compliance fee:
– $0.20 per-transaction fee
– Corporate/T&E/Keyed-In credit transactions at 3.30%
– Rewards credit transactions at 2.6%
– Standard credit transactions at 1.99%
– Signature debit transactions at 0.99%
- Contract: You need to agree to a contract term of 3 years. If you wish to cancel early, you may need to pay termination fees that can be between $95 to $295.