Your Guide to Payment Gateways
Your Guide to Payment Gateways
- What are payment gateways?
- How do payment gateways work?
- List of payment gateways
- How to choose a payment gateway
- Considerations for choosing a payment gateway
- Top payment gateways
Accepting credit cards via your business’s website is more than a common practice these days–it’s a necessary one. There are many payment methods to choose from these days but more and more customers are buying goods via the internet using their credit cards and businesses have to be able to process these payments or risk losing the business. To do so, a business needs to set up what’s referred to as a “payment gateway”.
What are payment gateways?
Payment gateways are simply put, cloud-based payment method software that allows customers to pay for goods via the internet using their credit card and for merchants to then accept that payment. When a customer purchases something using a payment gateway, it ensures that the customer has the proper funds needed to make the payment and then transfers those funds from the customer to the merchant. If you are using a payment gateway in person, it will most likely be a POS system or a card reader that allows you to scan your card.
How do payment gateways work?
There are a handful of key players involved in making a transaction using a payment gateway:
Merchant: the vendor who is making the sale.
Cardholder: the customer who is purchasing the item for sale.
Issuing bank: the financial institution in control of the cardholder’s credit card or checking account. If the cardholder is using a debit card, it must be linked to the issuing bank’s checking account. This is where the funds to make the purchase will be drawn.
Credit card company: what company is managing the credit card that the cardholder is using to pay the merchant. Examples of credit card companies are Visa, Mastercard, etc.
Acquiring bank: the financial institution in control of the merchant’s account. This is where the funds from the cardholder will be deposited.
There are several steps involved in a successful payment gateway transaction:
- A customer starts a purchase. This can happen in a variety of ways, but it usually involves a customer clicking “buy now” or something similar on a merchant’s website.
- The payment gateway is activated. It checks with the issuing bank to ensure that there are proper funds in the cardholder’s account so that the customer doesn’t bust their credit limit or the amount of money they have in their checking account.
- The payment gateway sends the card information to the credit card company so it can be processed. This card information is encrypted for security purposes.
- The credit card company approves the transaction and then sends all of the information to the vendor, completing the transaction.
- The payment gateway sends the information to the issuing bank so they can then transfer the necessary funds to the acquiring bank.
- The merchant delivers the product to the cardholder. Hopefully, everyone is happy.
List of Payment Gateways
There are three main types of payment gates:
Online payment gateways act as redirection mechanisms. When a customer clicks “buy now” the payment gateway takes them to a payment processor like Stripe or PayPal and they handle the rest.
Hosted (off-site payment)
There are a lot of different aspects to payment gateways and for businesses who don’t want to deal with any of that, hosted payment gateways allow you to offload the responsibility onto a dedicated payment processor. A cardholder will make a purchase–online or in-person–and the transaction is made through the payment provider’s servers. Examples of hosted payment gateway companies are Stripe and Square.
Self-hosted (on-site payment)
For those looking for a little more control, self-hosted payment gateways are the way to go. When using a self-hosted payment gateway the entire payment transaction takes place on your servers and you’re able to adjust the smallest details of the transactions to best suit your business.
How to choose a payment gateway?
There are a ton of payment gateways for websites and choosing the best payment gateways can be a complicated process. Before choosing a payment gateway, there are a few things to take into consideration.
Considerations and Questions for Choosing a Payment Gateway
To begin, start by asking yourself a few questions:
- Is the payment gateway you’re interested in using available for use in the country you do business in? If not you’ll have to choose a different option.
- How secure is the payment method? You’ll want to choose a payment gateway with a high level of encryption and one that’s PCI (payment card industry) compliant for online payments.
- How much control do you want over your payment gateway? If you want a lot of control over how your payment gateway functions with your business, you’ll want to look for a self-hosted gateway. If you’re more comfortable with another company handling the details of your payment gateway, a hosted gateway is probably your best option.
- Does the payment gateway cover the payment processing needs of your customers? Before you settle on a payment gateway, make sure that it’s able to accept the primary payment options your customers use to buy your product. You can learn more about what those payment processing needs might be in our Definitive Guide to Payment Processing.
- Will it integrate with your business's existing processes? Make sure that the payment gateway you decide on is able to easily connect with what you’re already doing. If not, you’ll spend countless hours reconfiguring your own systems to match up with the new system. Time you could be using to do other, more important things.
- What features does it offer? Your business has unique needs and problems that need to be tended to. The payment gateway you select should have a feature set that helps you do that. You might not be able to find a payment gateway that fits your business perfectly, but you should settle on one that is the closest fit to your requirements.
Top Payment Gateways
There are many, many different companies that offer payment processing solutions. All of them offer different features and different solutions. To help you choose, here's a list of payment gateways across the spectrum.
PayPal is one of the better-recognized payment gateways for websites. It has a solid reputation for security and offers a variety of different payment gateway options. PayPal offers two different payment gateway offerings, a basic fee-free mechanism and then a more feature-heavy offering that comes with a subscription cost. Fraud protection is offered on all of PayPal’s different payment gateway options for no extra cost.
Stripe is a popular strong product for eCommerce payment gateways, SaaS, non-profit, and businesses that manage large amounts of transactions. It is one of the largest payment gateway providers and brings exceptional security and an extremely large product suite for businesses of all sizes.
If you’re looking for a mobile payment gateway solution, Apple Pay is a great choice. With over a billion people using iPhones worldwide, Apple Pay ensures easy payment acceptance from a large customer base.
Square is a solid payment gateway solution for small businesses looking for an in-person credit card mechanism. The company has grown quite a bit over the last few years though and now offers a much more robust set of features for established and growing businesses.
This is one of the oldest of all payment gateways and with experience comes dependability and scope. Authorize.net can be used in over 33 countries and makes it possible to accept payments through a large selection of processors and platforms.
Plastiq continues to build innovative, easy-to-use APIs and SDKs that make processing credit card payments through your existing payment experience easier than ever before. More so, Plastiq’s core features offer automation, two-way accounting sync, the ability to accept credit cards without merchant fees, and a seamless means to pay vendors using your credit card.
As businesses put more and more of their products online, choosing a payment gateway that best suits your business becomes more and more important.