A Payment Gateway is a Powerful Tool that Helps to Reassure Visitors
A payment gateway is an essential tool for online businesses to reassure prospective customers that their website offers a safe and secure way to buy goods or services. An online checkout can make or break a customer experience, with a staggering 50% of customers not finalizing their purchase if the preferred payment method is not available.
As a result, businesses must provide a dependable payment gateway that caters to the needs and preferences of their customers. There are many payment gateway service providers available, each one offering various features and functions that may be useful for an online business, so it’s important to choose a payment gateway that meets the unique requirements of each business.
What is a Payment Gateway?
A payment gateway is an online payment service that allows online businesses to accept credit and debit cards and various other forms of electronic payments. Simply put, it’s a service that lets a website accept payments.
Think of it as the online equivalent of a point of sale terminal found in physical stores.
Customers provide the necessary payment details on the website, which is then passed onto the merchant, then goes between the merchant and the bank. If everything is accepted, then the money goes from the customer’s bank to the merchant’s account to pay for the product or service.
This entire process is done using a secure system that protects the sensitive financial details of both the customer and merchant. These can be easily integrated into most websites, with various types of payment gateway services available.
It is estimated that there will be 1.92 billion digital buyers in 2019 and most of them will use a payment gateway, so websites simply need to offer suitable services to cater to customer demands.
How Does a Payment Gateway Work?
The payment gateway process is straight-forward. After setting up the application on the website, payments can be accepted from various sources, typically including credit and debit cards, PayPal, although many payment methods are available depending on the service provider.
- Once a customer is directed to the payment page of a website, they input their financial data (e.g. credit card number) which is then forwarded to the payment gateway.
- The payment gateway receives the customer’s information and then sends this information to the merchant’s bank account using a shield link to protect all data.
- Upon the information being transferred to the merchant account, the transaction is either authorized or declined. If the payment is accepted, the merchant then begins processing the customer’s order.
- Finally, all transaction data is authorized by the merchant’s bank and the money is transferred from the customer’s account. The time it takes for payment to arrive differs depending on the payment gateway and the bank, taking anywhere from same-day transfer to several weeks.
Why Use a Payment Gateway?
There are many advantages to using an online payment gateway. In fact, any business that does not offer this type of payment method is falling well behind its competitors, with most established businesses using a payment gateway for online transactions.
Let’s take a closer look at some of the main reasons to use a payment gateway:
- Customer Demand
Buying products or services online is normal for most people. It’s estimated that more than $3 trillion will be spent in e-commerce sales in 2019 alone, with most people choosing PayPal (40%) and credit cards (31%) as their preferred payment method.
A payment gateway is therefore required to process the most preferred payment methods of the majority of online buyers.
Any businesses that aren’t catering to customer demand are limiting the profits they can make – half of all buyers don’t complete a transaction if their preferred payment method isn’t available!
- Build Customer Trust
As mentioned, customers want to use their preferred payment method online or they’ll likely leave the website without buying anything.
This is because a website needs to earn the trust of the customer by providing them with a reliable payment method – any website that lacks a payment gateway looks very dated and an unreliable place to buy goods or services.
When a business offers lots of payment methods on their payment gateway, it helps to build trust with the customer. They’ll be more confident as first-time buyers if they have a preferred payment method available, especially when there are multiple options to choose from, increasing the chance of repeat sales.
- Provide a Good Customer Experience
When a customer has a fast and simple payment method such as those provided by payment gateways, they generally have a much better buying experience. When they have a good experience on your website, they’re more likely to come back for repeat purchases.
Without a payment gateway tool, a website would need to use very dated methods to accept payments. For instance, a website that doesn’t use a payment gateway tool would need to manually gather credit and debit card information – usually over the phone!
In 2019 that is simply not an option that customers are going to entertain. Research from Betipy in GDPR shows how more and more customers will now hold their privacy in higher regarding, and businesses need to offer fast and efficient payment options, including accepting the increasing number of electronic payment methods customers want to use that keep their data safe and secure.
Choosing the Right Payment Gateway
Given the huge demand for electronic payment options, there are multiple payment gateway service providers offering a range of product options. The needs of every e-commerce business differ of course, which is why it is important to think about the needs of each business before deciding on a payment gateway.
Here are some tips for choosing the right payment gateway:
It is important to know whether the payment gateway is compatible with current the e-commerce platform. If you’ve already purchased an e-commerce software to operate your online business, the last thing you want to do is choose a payment gateway that cannot be integrated with the software.
Thankfully, there are plug-ins and extension options for all the top payment gateway services, so integrating compatible payment gateways should be easy enough for most websites. It’s always best to choose a service that already has a plug-in for your current platform!
Given how sensitive the financial data being transferred between customers, merchants, and bank accounts, it is imperative to choose a payment gateway that has all the necessary security protocols. For example, you should only choose a payment gateway that is at least level 1 PCI DSI compliant.
Additionally, it may be worth checking what other security measures are in place. For instance, does the payment gateway have built-in security measures? Do they provide fraud screening? All major payment gateway services usually offer some protection from fraud, so be sure that this is included
- Accepted Payment Methods
The general rule for a payment gateway is the more payment methods it accepts the better. While credit and debit cards are obvious methods to accept, don’t overlook the importance of variety – you want to accept all major domestic and international credit cards and debit cards.
Not only that, but you should also consider accepting payments in different currencies, especially if selling to an international market. In this case, you’ll also want to determine whether additional fees are charged for accepting multi-currency payments and whether the gateway offers different language options.
- Customer Support
Never overlook the importance of customer experience when choosing your payment gateway. This doesn’t just apply to the payment process but also customer support if there are any issues regarding their payment.
A lack of good customer support reflects poorly on the business, so it’s recommended that you choose a provider that offers necessary customer support. Research what support services is included with the payment gateway, such as the support methods (e.g. phone, email, tickets), support location (domestic or international?), support responsiveness, and if support costs extra.
- Does it Offer Recurring Payments?
If you plan on accepting recurring payments on your website then it’s important to choose a payment gateway that allows recurring payment options. The service should be able to store customer info to allow automatic recurring payments, with most prominent payment gateway service providers offering this.
- Is it Hosted or Non-Hosted?
A hosted payment gateway involves redirecting a customer from your payment page to a separate hosted payment page. The transaction is finalized on this page, after which the customer is sent back to your website where they’ll receive an order confirmation.
With a non-hosted payment gateway, the customer completes the entire transaction onsite without being redirected. This means entering and storing financial information on the website, so platforms typically need SSL certification and follow various regulations to meet PCI standards.
Host payment gateways are an ideal solution for smaller sized businesses, as it offers a secure payment method that meets PCI standards without having to invest in security protocols for their website.
The main drawback is that customers that are redirected often abandon the transaction, either because the process takes too long or appears untrustworthy.
Non-hosted is typically viewed as safer and more reliable by a customer because they’re never redirected to a different website. However, the fees needed to meet PCI requirements means it can be a very expensive option if not properly prepared.
That said, certain payment gateway service providers allow details to be transferred from the customer’s browser, meaning a quick and easy payment process without your site being forced to meet as strict requirements.
Fees for Using a Payment Gateway Service
The fees for a payment gateway service varies from each provider, so expect there to be various fees for setting up and using the service. In most cases, service providers charge additional fees for extra tools and functions such as fraud prevention tools and customer support.
Setup fees are a one-off payment for setting up the payment gateway service on your website. This is typically a flat rate and there are instances where the service provider does not charge a setup of the fee.
Transaction fees are where payment gateway companies make their money, so expect these to have the highest cost of any other fee. The amount varies from each company, with some charging a flat rate per transaction, a percentage of the transaction, or a combination of both. For example, PayPal charges 2.9% and $0.30 per transaction.
Monthly fees may also occur, with some charging a flat monthly fee as part of the service, while others may not charge you this fee if you meet a minimum requirement of sales. Again, every company has its own payment policies so make sure you research this!
Popular Payment Gateways
While there are many payment gateway service providers, it’s always recommended that your business choose an established payment gateway to reassure customers. Seeing a major payment gateway on your site may be the difference-maker – choose a provider that people know and trust!
Remember – there is no reason to stick with a single payment gateway! You may find it is a good strategy to use several gateways, with one being your main payment gateway and a decent alternative that most people can use.
One of the most popular payment gateways available, PayPal is the preferred payment method for around 40% of online buyers in 2019. While their transaction fees are higher than most, the fact that the company is so reputable and widely used makes it the go-to option for much online business.
That said, there are no setup or monthly fees, so the operating costs are only reflective of your sales. It’s a great idea to always have PayPal as at least one of the payment gateways given its huge popularity.
One of the rising names in the payment gateway sector, Stripe is very easy to integrate into most websites and their non-hosting allows direct transfers from browsers to their end. This means fast and efficient payments without ever leaving the site, often resulting in higher conversion rates.
They charge 2.9% and $0.30 per transaction, with a slightly higher fixed fee of 3.9% for international transactions. Stripe also accepts six major credit cards and accepts more currencies than PayPal, although it does cost a similar fee to use.
One of the first major payment gateway service providers, Authorize.net has a reputation for being a fantastic service for retail storefronts, being easy to integrate on many different platforms. The service does come with a flat setup fee and recurring monthly fees, although it is a feature-packed service that offers good value for money.
For example, the service includes robust security settings that include an advanced fraud detection suite with various fraud prevention filters, not to mention a great customer information manager (CIM) that greatly simplifies PCI DSS compliance. The company, owned by Visa, also offers great support services for both merchants and customers.