Choosing a Payment Gateway
How to determine what payment gateway is right for your business
Running an online business is hard work. You have to track inventory, market your wares, and maintain your shopping cart website. But there’s an extra step to setting up an online business you may not be aware of: choosing a payment gateway.
The right payment gateway can make or break an online sales business, but which one should you choose? Well, that’s dependant on your business.
Here’s a primer on online gateways: what they are and what you need to consider when figuring out which gateway to use for your online transactions.
What is a payment gateway?
A payment gateway is a merchant service tool that validates your customer’s credit card details securely. This ensures the funds are present and available for you to get paid. They authorize direct or credit card payments, processing them for online and offline retailers.
Within the context of online payments via debit or credit card, a payment gateway is responsible for the following:
When your user navigates to the checkout page on your website to enter their card details, this payment page will either be hosted with your payment gateway or will transfer details to it securely.
A payment gateway securely sends your user’s card details as well as transaction details to your chosen payment processor.
Once the information has made its way through the network to your customer’s bank, authorization will return to your payment gateway. Once this occurs you and your customer are informed whether the transaction was successful.
Now you know what a payment gateway is and how it works, let’s take a look at some factors you should consider when deciding which gateway is best for your business.
The first thing you should consider when choosing a payment gateway is how much total expense your business will incur. The costs usually involved with setting up and using a payment gateway are three-fold:
- Set-up Fees
- Monthly Fees
- Transactions Fees
In order to choose the right payment gateway for your business, you need to assess the volume and value of your transactions.
Most gateways have a baseline, competitive transaction fee rate. This is usually 2.9% + 30c per transaction. This rate works well for businesses whose transaction value isn’t that high. However, if your transaction value is extensive, these transaction fees can add up significantly. If your business relies on high-value transactions, you should look for a payment gateway that has a set monthly fee that offsets their transaction fees.
If, however, your business deals in low-value transactions, it can be worth it to look for a payment gateway that has little or no monthly fees. The transaction fees will likely be higher but the cost to your business will be negligible.
2. Types of Cards Accepted
Visa, Mastercard, and American Express are the most common credit cards on the market. They’re all generally supported by most payment gateways.
If your customers typically pay by other means such as debit cards or Diners Club cards, you’ll have to ensure whichever payment gateway you choose supports these options.
3. Holding Time
Though payments are typically approved immediately, the funds are held for a number of days before being settled in your account. This is to help facilitate refunds and charge-backs. Holding periods are generally between one to seven days depending on your choice of the payment service provider. It’s up to you whether you want to get paid immediately or wait – whichever you choose will depend on your cash flow.
If you want access to your funds fast, then going with a payment gateway that offers shorter wait times will obviously be of benefit. If you’re willing to wait, this consideration might not be your biggest priority in choosing a payment gateway.
4. Currency Support
When doing business internationally, you have to ensure your payment gateway can manage payments from different countries and in different currencies. It’s essential you give your customers the opportunity to pay in their own country’s currency.
You should also take into account any fees that come with processing foreign currency transactions. If a lot of your business is done internationally, the cost of these fees can easily add up over time.
5. Subscription Support
If you run subscriptions you’re going to need to pick a payment gateway that supports recurring billing. This is where a payment gateway is able to save and store a customer’s details for:
- Future transactions
- Automatic charges of credit cards on schedules
- Offering retry options for failed transactions
If a payment gateway is unable to support these features then you’ll have to do all this additional work manually on your end. For those businesses with significant customer bases or transactions, this can be a massive time sink.
6. Non-Hosted vs. Hosted
A payment gateway may be hosted off-site, meaning the user is directed to the payment processor’s site and prompted to enter their information. Conversely, it may be hosted on-site, meaning the customer is able to enter their information without leaving your domain.
Both of these methods of hosting a payment gateway has pros and cons.
The major benefit of using a hosted payment gateway is security – you don’t incur the risk of storing sensitive information on your own website. That said, directing customers to a different site does add another step in the payment journey. This can make it longer than usual. And as we all know, customer’s abhor lengthy payment processes.
At the end of the day, it’s an individual business’ decision whether to risk storing potentially sensitive information about their customers themselves.
The security of your payment gateway should be your highest priority. Because you’re storing and sending sensitive financial information, you have to ensure your payment gateway is entirely security compliant.
Different payment gateways will adhere to different standards of security. You should ensure the payment gateway you go with is level-1 PCI DSS compliant. Further, some gateways come packaged with screening tools like fraud protection to protect your business against dangerous or scam transactions.
Whichever payment gateway you choose you should make sure it has all the security features your business needs to run smoothly and safely.
8. Mobile Payments
Most people now use mobile devices like phones or tablets to shop online. It’s essential, then, that you choose a payment gateway that can support payments made from these devices. This not only helps you reach more customers, it also ensures the way they shop is safe and secure.
9. Transaction Limits
Certain payment gateways set an upper limit on the number of transactions you can process over a given time period. If you’re a small business, this might not become an issue but if you’re looking to scale or already process a large number of transactions this might become a factor you have to consider when choosing which gateway to go with. Choose wrong and you risk losing customers.
Integration between other systems may be essential for your business, particularly if you’re on the larger end of the scale. Having a payment gateway that can connect with your accounting or invoicing software so that any invoices can be auto-updated is a major time saver. You might also have CRM software that will benefit from integration with your payment gateway. Automatically creating and updating contacts will save you the time and effort required to update this information manually.
11. Level of Support
If you’re new to online selling or payment gateways it’ll likely take you a little bit of time and support to get up and running. Choosing a payment gateway with a robust customer support system will be essential for this type of business.
You ought to look at the following when assessing a payment gateway’s customer support:
- Does the provider offer a range of support options (eg: email, chat, phone, etc)?
- How responsive is the support team?
- Where is the customer support based? Do they run on the same schedule as you?
- Does customer support cost extra?
If you aren’t sure about a company’s customer support, look into reviews of them. People online will often review based on their experiences with a platforms support team.
12. Ease of Setup
Depending on what cart or platform you’re using to sell your goods, certain payment gateways will be easier or harder to set up.
When it comes to ease of setup, this may influence what payment gateway you go with, particularly if you’re not very knowledgeable in the setup of payment gateways already. A process that requires a few easily documented steps will obviously be of more benefit than a lengthy or technical method of setup.
Choose the right payment gateway for your business
Without a secure, cost-effective, well-supported payment gateway, your business can flounder or even fail. But understanding the various options and how they align with your business and your customer needs will help you choose the right payment gateway for your site’s success.