Online commerce is one of the fastest growing sectors of the economy. People love to shop online. It’s faster and more convenient that going to the store. It also gives them access to goods and services that might not be available to them otherwise. Therefore, it’s no surprise that so many people do their shopping online, and that so many merchants want to do business online.
However, none of that is possible without the ability to process debit and credit card transactions online. Merchants do business online to generate profit. In order to get paid for the goods and/or services you provide online, you’ll need a payment gateway.
This article covers the basics about payment gateways. It helps you understand what a payment gateway is, how they work, and how to find the best payment gateway. Use this information to help your online business grow above and beyond your expectations.
What is a Payment Gateway?
A payment gateway is a way to facilitate online transactions. The first step in any online transaction involves some kind of payment gateway. Online payments can be surprisingly complicated. After all, it’s hard to verify who is using the card at the other end. You also need to ensure that the customer’s account has sufficient funds to do the transaction. Finally, you need to actually receive the money your customer spends on your goods or services.
Payment gateways are the things that make that happen. They pass information about the payment to other services, like payment processing. Then, the payment gateway lets you know whether or not a purchase was approved or rejected.
They act as an interface between your payment processing service and your website or POS. Your customers won’t interact directly with your payment gateway. Instead, they’ll use things like online shopping carts or apps to select items to purchase. Once they’ve entered in all of their information, the payment gateway takes over.
The Online Purchasing Process
One of the most important things about online transactions is the speed at which they occur. When you think about it, there are actually a lot of steps involved in making a purchase. This is true anywhere. But it’s especially true online.
First, a customer finds your good or service and signals their intent to purchase it. This is usually done online by putting it in a digital shopping cart. The shopping cart is basically the payment gateway holding area. Payment gateways also allow purchases through hosted pages or an API.
It allows the customer to find all of the goods or services they want to buy. Then it lets them process the collection of items as one transaction, just like you would do in a real store. After all, the grocery store doesn’t make you swipe your card for each item you purchase. Why should online shopping be any different?
Once the customer has entered their card information and clicked the “check out” button, a complicated series of steps happens. First, your bank needs to ask the customer’s bank about the account they’re using. It checks to make sure the account information is valid. It also has protections to prevent others from using the card illegally.
Then the customer’s bank tells your bank if the purchase is approved or not. Your bank then sends that information back to you. It lets you know if the sale is rejected or approved. You can then execute the sale or request another form of payment from the customer.
If the sale is approved, then each bank needs to make arrangements to transfer funds. If the sale is rejected, then the merchant needs to know as soon as possible so they can ask the customer for another form of payment or turn down the sale.
People shop online because it’s faster and more convenient than going to a brick and mortar location. Payment gateways help maintain the speed of online transactions. They also help make sure that your customer’s data is kept safe. They encrypt the data so that the only computers that can understand it are the ones that are supposed to.
How does a Payment Gateway Work?
A payment gateway works by taking the customer’s information and information about the sale. It then encrypts that information and sends it to the customer’s bank. That bank talks to your bank and arranges the transfer of funds. They then send an answer back to the payment gateway. The gateway reports the answer to you and the customer. After that, the sale either goes through, or it is rejected.
This helps keep your customer’s information safe. It also helps protect you. This is because you can verify to a high degree of certainty that you will actually be paid for the good or service you’re providing. Any problems that do occur when it comes to your getting paid won’t be because of the payment gateway, but rather because of problems with credit approval and ACH transfers that will need to be resolved by your merchant account service.
How do I Find the Best Payment Gateway?
Every business is different. That means that every business has different needs. As a result, there’s no one best payment gateway. What’s important is knowing the right things to ask to find the best payment gateway for your particular business.
The most important thing to consider about payment gateways and your business is the type of business that you do online. Do you make lots of transactions or few transactions? Do you sell globally? What other merchant services do you need? Does your business have a brick-and-mortar location?
All of these questions will shape your needs when it comes to payment gateways. You might be tempted to go with the cheapest payment gateway you can find. However, that’s not always the best option. There are several factors you need to consider. These factors include things about the gateway service, as well as elements of your business.
PCI Compliance is Essential
The most important thing you can look for in any payment gateway is that it is PCI compliant. PCI, or PCI DSS, stands for the Payment Card Industry Data Security Standard. It’s the set of security standards that companies use to handle credit and debit card information in a safe and secure way.
There are different levels of PCI compliance. PCI compliance level 1 means that you’ll never have to worry about your customer’s data being stolen or privacy being violated because of your site. This also shows customers that you and your business are legitimate operations that they should want to buy from.
Transparency is Vital
Transparency is a key element in getting the right payment gateway for your business. Does the service charge a setup fee? How about a monthly fee? Is there a PCI compliance fee? Or a gateway processing charge?
Many business owners simply look at the per-month or per-transaction fee to compare services. Moreover, many companies don’t advertise all of the included fees on their sites. You need to call or email the company and ask for a list of all the fees their service would include for your business. That’s the only way to be sure of your actual cost for using the payment gateway service.
Another thing you need to be wary of are early termination fees. Most payment gateway contracts are month-to-month, and don’t have an ETF. However, if you’re getting your payment gateway as part of a bundle with other services, then your contract may include an ETF.
Finding the Best Payment Gateway Fees
There are a few things you should consider when you’re thinking about payment gateway fees. First, most companies provide payment gateways as part of other merchant services. For example, Stripe, Square, and other popular merchant services include a payment gateway as part of their monthly fee.
It can be difficult to determine what the most cost-effective model is for your business. The best way to think about it is to determine the total percentage of your monthly transactions that would go toward paying your merchant services fees and use that as a baseline comparison when looking at different providers.
This is because of the different types of services that these providers offer as packages. It’s also because the fees that you pay are usually volume-based. Businesses that do a high volume of transactions will pay a lower per-transaction fee. Businesses that do fewer transactions pay a higher per-transaction fee.
That means looking at the total percentage of your transactions that goes toward paying for merchant services on a given month will be the best way to objectively compare the different fee structures you’ll be offered, regardless of all the other variables. That means you’ll have found the best payment gateway fee for your specific business.
Flexibility
Customization is a big part of what sets one business apart from the rest. If your business relies on being innovative or unique, then you need the ability to customize the integration between your payment gateway and your site.
This is also true for companies that want to launch their own app if they want their customers to make purchases from the app. That means you’ll want a payment gateway that offers access to an API. This will let you ensure your app and your website work properly with your payment gateway. In turn, this ensures your customer’s data stays safe, and your reputation stays clean.
The Nature of Your Business
Another important thing to consider is the nature of your business. Like the last section pointed out, different businesses get different fee structures based on transactions. However, that’s only one thing you need to think about.
Another important consideration is whether or not you conduct business globally. Global payment gateways need to meet other standards for security. That means they charge higher fees. There’s also more steps involved in global transactions. Currency exchange may need to take place, and there may be other steps as well.
You also need to consider how you’re willing to take payment. For example, there are blockchain payment gateways that let customers use digital currency, like Bitcoin, for payment. Others, like ones that come standard with popular ecommerce platforms, like the Shopify payment gateway, might not be set up to take cryptocurrency as payment.
You’ll also want to see what kinds of payment your gateway needs to accept. For example, do you need to take American Express? How about lesser-used credit services like Diner’s Club? Understanding your specific customers and clientele is essential to knowing what you need out of a payment gateway service.
Value-Added Benefits
Most businesses use other merchant services in addition to payment gateways. These include things like merchant accounts, payment processing services, and more. It’s important to take all your options under consideration when making choices about these vital aspects of running a business. It’s generally easier to pay one company for all of your merchant services than to buy them individually from different companies.
The first reason it’s beneficial to consolidate your merchant services with one company is compatibility. Your payment gateway needs to be able to talk to your payment processing service and potentially to your merchant account. If you use different providers for all of these processes, then you may have compatibility issues.
Additionally, this simplifies your book-keeping. There’s only one provider to pay. Also, there’s only one company taking fees from your transaction, so it’s easier to figure out where your margins are. After all, given that most transaction fees are volume-based, different fee structures at different volumes with different companies make it a nightmare to understand how much it actually costs to do business.
Finally, merchant service providers will usually waive the more annoying fees that you get charged if you’re using them for multiple services. For example, most providers will waive any startup fees if you also use them for payment processing and a merchant account. That means that these services can have a leg up when it comes to cost competition.