A payment gateway is a piece of technology that’s used to collect and encrypt credit card information. It’s basically the first piece of a payment processing system. Once collected and encrypted, the gateway sends that information to your payment processor who will then contact the relevant banks and facilitate the actual transfer of money from the customer’s account to the merchant account. In a brick-and-mortar store, it would be the Point-of-Sale terminal. In eCommerce, it’s the checkout portal where customers type in their card information.
3 Types of Payment Gateways
To make sure you’re choosing the best payment gateway for your business, it’s important to understand the different types that are available. Identifying the type that your business needs can help you narrow down your search.
Hosted
Sometimes called a redirect, hosted payment gateways are an ecommerce service that will take your customer away from your page to a third-party payment page to finish the transaction. For merchants, this takes away the burden of setup and security since the transaction is handled entirely on the payment gateway provider’s site. But it does create an extra step for customers and merchants have little control over the purchasing experience.
API Hosted
Instead of redirecting to an external site, an API-hosted payment gateway allows customers to input their card information on the merchant’s website. However, once collected, the information is sent to the external payment gateway provider for processing.
Behind the scenes, it still functions much like a redirect gateway in that the transaction is still being handled entirely on an external site. So merchants don’t have to deal with complex setups but they get a little more control over the purchasing experience because they can customize the checkout page. For customers, it’s a more seamless experience since they aren’t being redirected to that external site.
The main drawback for merchants is that you do take on the added burden of security and PCI compliance since credit card information is being input on your site.
Self-Hosted
Unlike the previous two, self-hosted payment gateways are completely housed on the merchant’s site. Merchants have full control to customize the online purchasing experience but they’re also fully responsible for the setup and security. These are typically used by larger businesses with more complex tech infrastructure because it allows the merchant to customize the gateway to integrate with the rest of their payment processing system.
4 Features to Look for in a Payment Gateway
While they all perform the same basic function, payment gateways aren’t interchangeable. You’ll need to consider what kind of features and capabilities you need for your business so you can make sure you choose one that does everything you need it to do.
PCI-Compliant Security
If you’re opting for a hosted or API-hosted gateway, you may not have to manage the security yourself, but you do need to make sure the gateway has advanced security features. As a starting point, find out whether the payment gateway is PCI compliant. Then, check for added security features that go above and beyond.
Credit Card Issuers Accepted
Not all gateways will accept all credit cards or payment methods. While most accept all major credit cards like Visa, MasterCard, and Discover, they won’t all accept digital wallets like Apple Pay or Google Pay, and even fewer accept cryptocurrency wallets or P2P payments like Venmo or CashApp. Depending on your business, you may not need as much variety, but customers typically appreciate having a variety of options to choose from.
International Transactions
For merchants who want to be able to sell to customers all over the globe, you’ll need to be extra careful about choosing a payment gateway because there are many that won’t process international transactions. Those that do might have added fees, so you’ll also want to compare fees before you make your choice.
Technology Integrations
If you’ve already built your ecommerce website with Shopify or you already use QuickBooks to handle your accounting, you don’t want to end up with a payment gateway that can’t integrate with your existing tools. So think about the tools you already use and make sure to check whether the gateway you’re considering can integrate with those.
National Processing, for example, offers solutions that integrate with all the major platforms and software, including Shopify, Quickbooks, ZenDesk, WooCommerce, and more. It even offers custom integrations to help you build the tech stack that makes the most sense for you.
Frequently Asked Questions about eCommerce Payment Gateways
Getting all the tech set up so that you can start accepting payments while keeping your fees as low as possible can be a confusing process for new merchants. Here are quick answers to some of the most common questions merchants have during this process.
How Much Does a Payment Gateway Cost?
Payment gateway fees can include an initial setup fee, a monthly service fee, and a small transaction fee. However, some providers, like National Processing, offer free gateway setup or all-in-one payment processing solutions where the gateway is included in a larger payment processing service.
Do You Need a Merchant Account for a Payment Gateway?
Yes, you need a merchant account for a payment gateway. Your merchant account is where you receive the actual money from a sale. While the payment gateway can collect the credit card information, it’s not a bank account that can receive the payment.
What Is the Difference Between Payment Gateway and Digital Payment?
A digital payment refers to a wide variety of cashless transactions, including credit card payments, bank transfers, and digital wallets, among others. A payment gateway, on the other hand, is a piece of technology used to process those digital payments. Specifically, a gateway collects and encrypts the payment information before its sent on to a payment processor.
Does a Payment Gateway Only Accept Credit Cards?
No, a payment gateway can accept a wide range of payment methods including digital wallets, cryptocurrencies, and more. However, not every gateway offers the same variety of payment methods so if a merchant wants to accept more than just credit cards, they need to make sure they choose a gateway that accepts additional methods.
