When choosing a payment gateway, it’s important to consider both the front-end and back-end user experience, security features, and cost.
Payment gateways are not one-size-fits-all. The best payment gateway for your business will depend on the size of your company, the nature of your business, and your typical customer.
What is a payment gateway and how does it work?
A payment gateway is a technology that allows merchants to authenticate and facilitate customer payments. Payment gateways collect and encrypt sensitive customer payment information (e.g. credit card or digital wallet details), then securely transmit it to the payment processor.
Many of today’s payment gateways also serve as payment processors, responsible not just for transmitting customer data, but also for authenticating it and initiating the transfer of funds between parties.
Key parties involved:
How to choose the right payment gateway?
Payment gateways typically charge merchants in one of three ways: fixed monthly fees, per-transaction fees, or a combination of both. Transaction fees are often a percentage of the transaction amount (e.g. 2.9%) plus a fixed fee (e.g. £0.20). For gateways that facilitate international payments, transaction fees will vary depending on the customer’s location.
In addition to monthly costs and transaction fees, merchants should also consider the following potential costs when comparing payment gateways:
Many payment gateways offer reduced fees as the monthly transaction volume and/or monthly revenue grows. Merchants, larger businesses, in particular, can negotiate prices with their payment gateway and develop a custom fee structure that works for both parties.
2. Currencies and service area
Not all payment gateways are designed with the global business in mind. Merchants must consider whether they sell—or would someday like to sell—their products or services internationally and choose a payment gateway that works well in those countries.
For international sales, merchants can also select a payment gateway that allows customers to pay in their local currency. Multi-currency payment gateways automatically convert prices into the customer’s local currency and, when processing the transaction, convert it into the merchant's local currency at the prevailing exchange rate. This can be a huge draw for international customers who prefer to view products with localised price tags, rather than having to do the mental calculations themselves.
3. Payment methods
Not all payment gateways accept every type of credit card. For example, almost all payment gateways accept Visa and Mastercard payments, but a smaller percentage also accept Discover and American Express. Merchants must consider whether it’s beneficial to give their customers more options when making card payments and balance this against the higher fees involved.
In addition to the types of card payments to accept, merchants can also consider whether they would like a payment gateway that integrates with popular digital wallets like Apple Pay and Google Pay. The ease and speed at which customers make online payments with digital wallets don’t only improve the customer experience but can lead to more sales as well.
4. Recurring payments
For businesses that offer subscription-based goods and services, payment plans, scheduled charity contributions, or anything else that requires customers to pay on a recurring basis, it’s essential to choose a payment gateway that can facilitate recurring payments.
Payment gateways that accept recurring payments allow customers to select their payment schedule (these options can be customised by the merchant), securely store their data, and automatically initiate the payments as planned.
5. Transaction limits
Most payment gateways have a transaction limit that sets a cap on the maximum amount a customer can pay in one individual transaction. These limits vary depending on the payment gateway and, for customised accounts, the nature of the merchant’s business.
Transaction limits are designed to protect customers from fraud and billing mistakes. However, it’s always worthwhile for merchants to review transaction limits to make sure they won’t hinder their sales process.
For online retailers, there are three main types of payment gateways to consider, categorised based on where and how the gateway is hosted.
With hosted payment gateways, customers are redirected away from the merchant’s website to a secure payment page on the gateway provider’s website. Customers enter their payment information on this page, enhancing security for merchants by keeping sensitive data off their sites. However, redirecting customers to a separate website can disrupt the sales process. If the customer isn’t familiar with the payment gateway, they can lose trust in the process and abandon their cart.
With self-hosted payment gateways, merchants host the gateway directly on their website. This creates a more seamless checkout process but places a greater liability on the merchant to ensure the customer’s sensitive data is transmitted securely.
A blend of the two previous gateway types, API-hosted payment gateways allow merchants to customise and embed payment forms into their own website using an application programming interface (API). Customers stay on the merchant’s website throughout the checkout process, while the payment gateway provider remains responsible for encrypting and securely transmitting the customer’s sensitive data. Merchants using API-hosted payment gateways are still required to be PCI DSS Compliant.
7. Integrations and compatibility
Before selecting a payment gateway, merchants should look for features that will ensure a seamless integration. These include:
When choosing a payment gateway, merchants should ensure that their customers’ sensitive data will be securely protected by looking for the following features:
9. Customer support
It’s never been easier to quickly and securely accept customer payments, but that doesn’t mean it’s always smooth sailing. When issues and concerns do arise, having a gateway provider that’s easy to contact and available for troubleshooting is essential.
Merchants should look for a payment gateway provider that has multiple customer support channels, such as email, phone, live chat, FAQs, and user guides.
Choosing a payment gateway, in brief:
A payment gateway completes the first step of the payment process, securely collecting and sending the customer’s payment details to the payment processor. The payment processor communicates with the customer’s bank and the merchant’s bank to authenticate the transaction, verify funds, and manage the transfer of money.
In essence, the payment gateway acts as a bridge between the customer and the payment processor, ensuring that their sensitive data is encrypted and transmitted securely.
Many modern payment service providers offer combined services as both a payment gateway and a payment processor.
Connects merchant bank with customer bank
Can process a transaction and transfer funds from the cardholder’s account to the merchant account
Relays transaction information between banks to process payment
Needed for both in-person and online transactions
Encrypts and transmits information between merchants and customers
Relays whether a transaction has been approved or denied
Requires a payment processor to carry out the final transaction
Used mostly for online transactions