Choose the Right Payment Gateway for Your Business

What is a payment gateway?

A payment gateway is software merchants like e-commerce businesses and stores use to provide frictionless payment options and accept credit card payments and other electronic transactions. It's an intermediary between the merchant's website or point-of-sale (POS) system and the payment processor. The main goal of a payment gateway is to securely encrypt and transmit sensitive payment data from the customer to the payment processor before going to the merchant's bank account, ensuring the confidentiality and integrity of the transaction.

When a customer makes a purchase on a merchant's website, the payment gateway collects the payment information, such as credit card details. It encrypts this information using secure sockets layer (SSL) or transport layer security (TLS) protocols. This data is then securely transmitted to the payment processor for further processing and authorization.

What is the difference between a payment gateway and a payment processor?

While a payment gateway and payment processor both allow you to accept payments and work together, they have different purposes for payment processing. A payment processor transfers information between the customer's issuing bank and the acquiring bank (the merchant's bank). It handles the authorization, settlement, and funding processes, ensuring the merchant receives the funds from the customer's account.

However, a payment processor cannot function independently without a payment gateway. The payment gateway acts as the entry point for the transaction, capturing the payment information and securely transmitting it to the payment processor. The payment gateway enables communication between the merchant's website or POS system and the payment processor.

Payment gateways work in a series of steps that allow businesses like yours to collect credit card payments. Let's take a closer look at the payment gateway process involved in most online payments:

1. A customer places an order

When customers visit a merchant's website and decide to buy something, they add items to their shopping cart and want to complete the transaction by visiting the checkout page. On this page, the customer enters their payment information, which includes credit or debit card details, billing address, and shipping information.

2. Data encryption and transmission to the payment processor

Once the customer enters and submits their card or other payment information, the payment gateway encrypts the data. This encryption ensures that sensitive payment information remains confidential and protected from unauthorized access. The encrypted data is then securely transmitted to the payment processor for further processing.

3. The issuing bank approves the transaction

Upon receiving the encrypted payment data from the payment gateway, the payment processor forwards it to the issuing bank for authorization. The customer's bank verifies the account's status, available funds, and any potential fraud indicators.

If there are no red flags, the issuing bank approves the transaction and returns a confirmation to the payment processor.

4. A confirmation is sent to the merchant

The payment processor relays the authorization response from the issuing bank to the payment gateway. After this, the payment gateway sends the status of the transaction to the merchant account.

Once the transaction is approved by the acquiring bank, the merchant receives a confirmation, and the customer is notified that their payment has been successfully processed.

5. Funds are transferred to the merchant account

After the transaction is approved and completed, the funds are typically transferred from the customer's account to the business's merchant account within a few business days. The payment processor handles the settlement process, ensuring the merchant receives the funds minus any applicable fees.

What are the different types of payment gateways?

When choosing the best payment gateway provider, not only do you have several different types of companies to choose from, but you also have different types of payment gateways available. Keep in mind that not all these options will be right for your business. The three primary types of payment gateways are:

• Hosted payment gateways: Hosted payment gateways are perhaps the easiest to set up. They redirect customers to a secure payment page hosted by the payment service provider. The customer enters their payment information on the provider's website, and the transaction data is processed there. While these payment gateways are considered the easiest to manage, the redirection process may slightly disrupt the customer's checkout experience, and businesses have limited control over the payment page's design.
• Self-hosted payment gateways: Self-hosted payment gateways let merchants integrate the payment process directly into their own website. Customers won't be redirected offsite or to a page that doesn't look like the existing website. Instead, they'll enter their payment information directly on the e-commerce site, which provides them with a seamless and branded checkout experience. While this type of gateway offers greater customization and control, it requires more technical knowledge and resources to implement and maintain. Additionally, merchants are responsible for ensuring the security and compliance of their payment pages.
• Redirect payment gateways: Redirect payment gateways combine elements of hosted and self-hosted gateways. With a redirect gateway, customers begin the checkout process on the merchant's website but are then redirected to a secure payment page hosted by the gateway provider. This is where they'll enter their payment details and information. This approach balances ease of use and customization, allowing merchants to maintain some control over the checkout experience while using the security and functionality of the gateway provider.

What are the benefits of payment gateways?

Using a payment gateway offers businesses many benefits, from ensuring secure transactions to enhancing the customer experience and streamlining payment processes. Some important advantages to note are:

• Convenience: Payment gateways provide a convenient and user-friendly way for customers to make purchases online. With a range of different payment methods, customers can choose their preferred payment method, whether a credit card, debit card, or digital wallet. This convenience encourages customers to complete their purchases, reducing cart abandonment rates and increasing sales.
• Security: A secure payment gateway uses advanced encryption technologies to protect consumer payment information and prevent fraudulent transactions. They also adhere to strict security standards, such as the Payment Card Industry Data Security Standard (PCI DSS), ensuring that customer data remains safe and secure throughout the transaction process.
• Enhanced customer experience: Payment gateways contribute to a seamless and positive customer experience. Giving your customers multiple payment options and a smooth checkout process lets you cater to the diverse preferences of every customer you have. A hassle-free payment experience increases customer satisfaction, loyalty, and repeat business.
• Global reach: Payment gateways allow businesses to expand their reach and tap into global markets. Many payment gateways support multiple currencies and international payment methods, allowing businesses to accept payments from customers worldwide. This level of accessibility opens up new opportunities for growth and revenue generation.

What are the most common payment gateway providers?

With numerous payment gateway providers available in the market, businesses have countless options to choose from. Here are some of the most popular payment gateways to choose from:

PayPal

PayPal is one of the most popular and well-known payment gateway providers available. Known for its ease of use, PayPal offers a simple, familiar interface, supports many different currencies, and provides robust fraud protection. PayPal also offers a variety of integration options, making it suitable for businesses of all sizes to accept payments.

Stripe

Stripe is a developer-friendly payment gateway that offers a comprehensive set of APIs and tools for seamless integration. It allows for various payment methods, including credit cards, debit cards, digital wallets, and local payment methods. Stripe's transparent pricing and excellent documentation make it a popular choice among businesses.

Square

Square is a versatile payment gateway catering to online and offline businesses. It comes with a range of hardware and software solutions, including POS systems, mobile card readers, and e-commerce integrations. Square's user-friendly interface and competitive pricing make it an attractive option for small businesses.

Authorize.net

Authorize.net is a reliable payment gateway that has been serving businesses for over two decades. It offers a range of features, including fraud detection, recurring billing, and customer information management. Authorize.net integrates seamlessly with various e-commerce platforms and POS systems to process electronic payments.

Clover

Clover is an all-in-one payment solution that combines payment processing, POS functionality, and business management tools. It provides a range of hardware options, including mobile card readers and full-featured POS systems. Clover's user-friendly interface and app marketplace make it a popular payment gateway choice for small businesses and retailers accepting online payments, international payments, and in-store payments.

Shopify

Shopify is an all-in-one e-commerce platform that comes with its own payment processing system called Shopify Payments. It's a great choice for businesses that want to start an online store easily.

How do you choose the best payment gateway?

A payment gateway can profoundly impact your business's success. With so many options available, each with its own unique set of features, pricing structures, and integrations, it can be overwhelming to determine which one best suits your needs. To help you understand the options in the market, let's explore the key factors you should consider when choosing a payment gateway.

Pricing and fees

First, you must evaluate the pricing and payment processing fees associated with each payment gateway. While going for the cheapest option may be tempting, looking beyond the surface-level costs and examining the overall value proposition is essential.

Payment gateways typically charge a combination of transaction fees, setup fees, and monthly fees. Transaction fees are usually a small percentage of each sale, ranging from 2% to 5%, plus a small fixed amount per transaction. Setup and monthly fees can vary significantly between providers, so assessing how these costs align with your expected sales volume and budget is crucial. For example, some payment gateway systems might charge fixed transaction fees, whereas others may charge variable fees.

When comparing pricing, be sure to read the fine print and watch out for hidden costs or additional fees. Some payment gateways may charge extra for features like fraud protection, recurring payments, or to process international payments. Others may have tiered pricing structures that offer lower rates for higher volumes, which could be advantageous if your business processes many transactions. The goal is to find a payment gateway that offers transparent, competitive pricing that fits your business's unique needs and budget.

Security

Security should be a top priority when choosing a payment gateway provider. As discussed, your payment gateway encrypts transactions like an online payment. A reliable payment gateway provider should adhere to the highest industry security standards. This standard sets requirements for securely handling, processing, and storing credit card information.

Look for payment gateways that use robust encryption technologies when processing payments, such as SSL or TLS, to safeguard data transmitted between your website and the gateway. Tokenization is another important security feature to consider, as it replaces sensitive payment information with a unique, randomly generated token, further enhancing data protection.

Fraud detection tools, like address verification and CVV checks, can help identify and block suspicious transactions, minimizing the risk of chargebacks and fraud that can harm your business's reputation.

Integrations

Another critical factor is seamless integration with your existing e-commerce platform, website, or point-of-sale (POS) system. A payment gateway that works with your current processes and tools can save you time, effort, and resources in the long run.

Look for gateways that offer plug-and-play integration with popular e-commerce platforms. If you have a custom-built website, ensure the gateway provides well-documented APIs and SDKs that allow easy integration.

In addition to technical integrations, consider how well the payment gateway aligns with your business's specific needs and workflows. Some gateways offer advanced features like inventory management, invoicing, and recurring billing, which can streamline your operations and reduce manual tasks.

If your business operates across multiple channels, such as online and brick-and-mortar stores, look for a gateway that can accommodate omnichannel payments and provide a unified view of your transactions.

Payment methods

Customers expect the flexibility to pay using their preferred method, whether it's a credit card, debit card, digital wallet, or local payment option. A payment gateway should support an array of payment methods to help you cater to a diverse customer base while improving the overall checkout experience.

When evaluating payment methods, consider the geographical regions you operate in and the preferences of your target audience. Similarly, if your business targets younger demographics, offering mobile-friendly payment options like Apple Pay or Google Pay can make checking out more convenient and boost conversions.

Customer support

When issues arise, having access to responsive, knowledgeable support can make all the difference in resolving problems quickly and minimizing potential revenue losses. Look for payment gateways offering multiple support channels to ensure you can get help when needed, such as a dedicated account manager. Consider the availability of support, especially if your business operates outside of regular business hours or in different time zones.

In addition to reactive support, a good payment gateway should provide proactive resources to help you get the most out of their platform. Comprehensive documentation, FAQs, and tutorials can empower you to troubleshoot common issues and optimize your payment processing setup. Some gateways even offer dedicated account managers or success teams to provide personalized guidance and support as your business grows.

Reputation

Learn about the reputation of the payment gateway providers you evaluate. Look for established companies with a proven history of reliability, security, and customer satisfaction. Read reviews and case studies from other businesses in your industry to gauge their experiences and identify potential red flags.

While no provider is perfect, a strong reputation and positive feedback from other merchants can help you learn more about a provider while giving you the information you need to make the best decision for your business.

Finding the Right Payment Gateway for Your Business

The payment gateway you choose for your business can significantly impact its success and growth. Carefully evaluating factors such as pricing, security, integrations, payment methods, customer support, and reputation can help you find a gateway that aligns with your unique needs and goals. Remember, a payment gateway is not just a financial tool but a strategic partner that can help you streamline operations, enhance customer experiences, and expand your reach in the online marketplace.

Improve the customer experience even more by integrating your chosen gateway with a powerful marketing automation tool like Mailchimp. Connecting Mailchimp with your store and payment gateway gives you a seamless flow of data between your online store, email marketing campaigns, and payment processing. With Mailchimp's built-in integrations and extensive library of third-party add-ons, you can effortlessly sync your sales data, enabling you to craft personalized marketing campaigns, fine-tune your conversion strategies, and provide unparalleled customer service. Sign up for Mailchimp today.