How to Choose the Right Payment Gateway?
Imagine this! You set up an e-commerce site. It’s absolutely gorgeous! It has everything- right from advanced search filters to elegant products and awesome product descriptions. However, when prospects try to initiate and complete payments, payment doesn’t go through. Payment gateways can either propel your business or dismantle the same. Customers shouldn’t feel stuck. Rather, their experience should be hassle-free. When it comes to choosing the right payment gateway, online retailers and online stores should act on logic, reason, and reputation. Let’s explore how to choose a payment gateway.
What is a payment gateway?
It’s common to see a physical point of sale terminal in many retail and conventional brick and mortar stores. Payment gateways are the virtual equivalence of point of sale terminals.
A payment gateway is a powerful merchant solution that facilitates internet payment transactions across diverse e-commerce businesses. In other words, payment gateways authorize and accept credit cards and debit card payments. Therefore, it’s not uncommon to see payment gateways in online and conventional brick and mortar stores.
How do payment gateways work?
Payment gateways perform many tasks before finalizing an internet transaction. And yes, payments processing is their most important function.
Allow me to explain.
It’s the process of encoding vital information by using an algorithm so that authorized parties can access the information. In simple words, encryption obviates unauthorized access to vital information. Whenever a customer initiates the purchase of an item with a credit or debit card, the information is encrypted by the web browser. Subsequently, the payment gateway sends the encrypted transaction data to the payment processor.
The payment processor initiates an authorization request to the customer’s issuing bank or card association. The bank/association can either respond in the affirmative or non-affirmative. If the authorization request is approved, the transaction is accepted. This process of interpreting and encrypting data, and sending authorization requests takes no more than a couple of seconds.
Do not get confused between the terms issuing bank and acquiring bank. An acquiring bank is nothing but a recognized financial institution that process payments from debit and credit cards on behalf of a merchant. An issuing bank is a financial institution that issues tangibles like debit and credit cards to its customers.
Simplistically put here are the steps of transaction that happen through a payment gateway.
A customer places an order on the website.
Merchant’s website takes that secured and encrypted data to the payment gateway
Payment gateway authenticates the transaction. If the authentication goes through, transaction i authorized or declined by the issuing bank.
Payment gateway passes the message to the merchant website about payment success or failure. Issuing Bank settles the transaction with payment gateway and payment gateway settles the payment with the merchant.
While the above process may seem pretty elaborate and long, the entire process happens within a few seconds.
What are the types of payment gateways?
Payment gateways are of four types: • Hosted • Self-hosted • API hosted • Local bank integrated
Hosted payment gateway:
Hosted payment gateways like PayPal direct your customers to a payment page outside the website and redirect them back to the website after completion.
Another option is to use an iframe. Payment gateways or payment service provider host a form(iframe) that is inserted on the merchant’s website. Payment information is collected by an inline form(iframe). This form is hosted on the payment gateway’s website or payment service providers website. So when the form is filled up, the payment services provider received the payment.
Advantages of Hosted payment gateway
Security- According to aconducted by , the biggest concern of customers around online payments is the risk of identity theft. The best thing about hosted payment gateways is that they are PCI compliant. That means you need not worry about fraud protection.
Customizable- Hosted payment gateways are customizable eg. you can add your company logo on the payment page.
Simple- Easy to set up.
Disadvantages of Hosted payment gateway
As hosted payment gateways are external, the user experience in terms of look and feel, speed etc. cannot be controlled. As a consequence, conversion rates may nosedive.
Self-Hosted payment gateway:
Popular examples of self-hosted payment gateway areand . As a matter of fact, Shopify Payments and TradeGecko are powered by . For all intents and purposes, a self-hosted payment gateway collects payment details and other relevant customer information from the merchant’s website before sending the information in a particular format to the gateway’s URL.
This type of payment gateway can support one time payments easily. For recurring payments, a profile needs to be created and users need to enter website URL where payment notification can be sent post payment. Refund and cancellation also need to be done from payment gateways website.
Advantages of Self-hosted payment gateway
A self-hosted payment gateway collects payment details within the merchant’s website. As a result, great customer experience is ensured.
Customizable experience- Look and feel can be customized
Disadvantages of Self-hosted payment gateway
Very often, self-hosted payment gateways do not have a dedicated technical support team to resolve technical issues. You may have to hire a professional. This may not be financially viable.
Security- Security of data needs to be taken care of as data resides on the merchant website
API hosted payment gateway:
Let me explain API first.
An API is a set of programs and functions that help a software application to perform a specific task.
Thanks to API hosted payment gateways, customers can provide their respective credit or debit card information on the website ’s checkout page. An API or a series of HTTPS queries is used to process payments. By using an API, the merchant can ensure that users do not have to leave their website. This results into a great experience from user’s perspective. This type of payment gateways can support both one-time payment and recurring payments.
Advantages of API hosted payment gateway
UI stands for User Interface. UI journey is a process of mapping the interaction between the user and interface ie., API gateway in this case. Since the checkout process is smooth, great UI journey and gratifying customer experience are on the cards.
Disadvantages of API hosted payment gateway
You are responsible for addressing security and compliance.
And yes, you will also need to purchase an SSL certificate
Local bank integrated payment gateway
A local bank integrated gateway redirects customers to the bank’s website wherein they can provide contact and payment details. Subsequently, the customers are redirected back to the merchant’s website.
Advantages of Local bank integrated payment gateway
Local bank integrations are easy to set-up. This makes them ideal for small businesses.
Disadvantages of Local bank integrated payment gateway
This type of payment gateways is devoid of advanced features. They cannot be used for facilitating recurring transactions. As a result, whole-sellers and big online businesses distance themselves from local bank integrations.
Also, refund and cancellation have to be managed manually by the merchant.
Factors that impact payment gateway choice
1. Transaction charges:
E-commerce entrepreneurs, business owners, and merchants are often oblivious to transaction charges. It’s important to understand the complete structure of the transaction fee. There should be no surprises. Delve into the pricing policy. Check if there are any monthly fee and setup fee. If there’s no transparency in the pricing policy of a payment gateway, just choose a different payment gateway.
Certain payment gateways have certain conditions such as a minimum volume of transactions, local traffic volume, etc. Read each and every condition. Choose a payment gateway accordingly.
2. Annual maintenance charges
Sometimes, you get excited and ignore annual maintenance charges. Be cautious. Take annual maintenance cost into consideration. Annual maintenance charges should be minimum and fit in your budget. Otherwise, your profits may take a backseat.
3. Number of steps to purchase completion
According to a study, the average documented online shopping cart abandonment rate is 69.89%
Ask the following questions: – Is the payment gateway taking more than 4 steps to facilitate an internet transaction? – Is the checkout process tedious?
According to, the number 1 reason that customers abandon their respective shopping carts is the tedious, uncomfortable and unhealthy checkout process. If answers to the aforementioned questions are in the affirmative, shopping cart abandonment rate is likely to be high.
4. Process flow:
As discussed earlier, you should decide the kind of payment gateway you would want to go in for keeping in mind the process flow for your payments.
The payment gateways offer the following options to the customers making payments:
An integrated Payment Form: This enables a payment form integrated on your website. Details are sent to a secure payment gateway. It is an option through which payment details are sent, providing a better customer experience. The form contains all the required information and passes it to the gateway provider by calling the integrated API. This may require additional programming, and therefore, boosts the overall cost of payment gateway integration. This type of payments is supported by hosted payment gateways like API hosted payment gateways and Self-hosted payment gateways.
Redirect for payments: Here customer is either redirected to a secured hosted payment page, or they are required to enter their information in an embedded iFrame on the website. Developers can leverage this option as it takes less time to integrate. Example of this type of payment gateway are Hosted payment gateways and local bank integrated payment gateways.
Having an Escrow system: An escrow account holds the transaction amount till it is directed to be paid on meeting certain conditions by the merchant. These conditions can be products delivered or meeting of a particular deadline etc. Eg. in a marketplace where buyer and seller both transaction, this type of a payment gateway enables the marketplace to hold the amount in escrow till conditions are met and then deliver the money into the merchant account. This payment gateway option suits certain businesses, by building a secure escrow system within your platform for withholding funds before the right authority is granted by the admin.
5. Responsive Payment page:
In India, most of the websites get between 65-85% of traffic from Mobile. You should look at the payment page and check if it is responsive. A responsive page will adapt to various screen sizes and ensure ease of use. In case of Local Bank Integrated payment gateway, especially with PSU banks in India, there may be a problem. In such a case it is best to have an alternate payment gateway.
6. Integration with CMS
Certain payment gateways offer platform agnostic experience. In other words, they seamlessly integrate with different CMS platforms.
Don’t limit yourself to that payment gateway which doesn’t integrate with your CMS. A few payment gateways may require a couple of tweaks and a few adjustments to integrate with CMS. That shouldn’t be a problem as long as integration costs are minimum.
7. Automated payments for recurring payments
Do you sell a service and want to provide a recurring payment option to your customers? Processing recurring payments can be frustrating. Automation can be a savior. Do not hesitate to embrace payment gateways that automate recurring payments.
8. Fraud Protection
Using a payment gateway that doesn’t adhere to level 1 PCI DSS (Payment Card Industry Data Security Standard) protocol is inadmissible. Acquaint yourself with different fraud protection tools. If a payment gateway provider has advanced fraud protection features such as tokenization, embrace it wholeheartedly.
9. Customer support:
Nothing short of round-the-clock support is desirable. Payment gateway providers should offer not only email support but also telephone support. Get answers to the following important questions: – Is the customer support a function of the number of transactions you process? – Where’s the customer support team located? – How’s the response of the customer support team?
10. Multiple currency support:
According to a study, an estimated one-third of online shoppers in Europe purchase physical goods from other countries.
Cross-border trade is a distant dream if payment gateways do not support multiple currencies.
To attract a big audience and maximize sales, multiple currency support is inevitable. If a payment gateway provider supports multiple currencies, learn more about DCC (Dynamic Currency Conversion) tools. If a merchant offers Dynamic Currency Conversion, it means that you are allowed to pay in your local / home currency for your overseas shopping.
11. Settlement cycle:
Settlement of funds usually takes a few days. Settlement happens when the card issuer drives funds into your merchant’s account. The merchant bank then drives funds into your bank account. Settlement cycle should be short. Every day’s interest lost is an opportunity for you to encash upon. So shorter settlement cycles is something that you should look out for.
12. Onboarding process / documents requirement:
Many payment gateways require a canceled cheque of bank account, a copy of address proof, a copy of partnership deed duly signed by authorized signatory, a copy of govt. proof of the firm, etc. The onboarding process is a bit tedious. However, it isn’t complicated.
The speed at which the transaction gets completed also is an important factor to be considered. Even though tech stacks and servers are highly efficient today some payment gateways take longer than others. There is no data available in the public domain about the speed of payment gateways. So merchants may have to depend on trial transactions to figure out the speed of payment going through. The speed of payment gateway impacts the cart abandonment. Longer it takes to complete the transaction, higher the probability of abandonment of transaction.
That’s it. Assess all the aforementioned factors and choose the right payment gateway. Enhance your sales, develop your product or service offerings, accept payments from your customers and maximize your earnings. Cheers!