If you are looking for secure ways to expand your online business, first, you should ensure customers’ payment process is streamlined. For this, you must consider your online payments via payment gateways.
A payment gateway is significant for online merchants who accept customer card payments. As per the experts, the right payment gateway for your eCommerce website will let you provide a personalized customer experience. They ease your customers’ transactions and immediately reflect the transaction on your end, a merchant’s side. Still confused? Let’s understand it better.
This post will help you understand what a payment gateway is, how it works, the latest facts and statistics, top names of payment gateways that are widely used, how to choose the best for your eCommerce website, and a lot more.
- What Is a Payment Gateway in eCommerce?
- Understanding Payment Gateway in Brief
- What Is The Process For Receiving Payments?
- Most Popular Payment Methods?
- Credit Card
- Debit Card
- Bank Transfer
- Direct Deposit
- App Payments
- Electronic Checks
- Digital Wallet
- Choosing The Right Payment Gateway Involves Several Factors
- Consider Fees and Service Agreement Requirements
- Holding Time
- Recurring Billing
- Multiple Currency Support
- Transactional Efficacy
- Mobile Payment Support
- Types Of Cards Allowed
- Easy Integration Process
- Merchant Account
- Make Customers Feel Safe and Secure
- Make Checkout Easy on All Devices
- 24×7 Customer Support
What Is a Payment Gateway in eCommerce?
A payment gateway is a mechanism that interprets and transfers customers’ payment details to merchants’ bank accounts. Simply put, a payment gateway is cloud-based software that connects a consumer to the merchant.
Physically, it’s an in-built software of a card reader or point-of-sale system that processes a transaction when a cardholder opts to pay through their card or smartphone.
According to Gartner, “Payment gateways initiate payments at the request of merchants and return the responses to those merchants. They offer preexisting connections and certified integrations with key payment acquirers and processors, and many have integrations with other providers in the greater digital commerce ecosystem. At a minimum, all digital commerce payment vendors offer a software-as-a-service (SaaS) payment gateway. Many full-stack providers include processing and acquiring capabilities, alternative payment methods, fraud detection, payment data tokenization, and other related or ancillary services.”
Apart from that, in online stores, you can find a payment gateway as the “checkout” portal that helps input payment details or credentials for services like PayPal.
Statista states that in 2022, in the digital payment segment, the total transaction value is likely to reach about $8.49 trillion. Also, by 2027, with a total transaction value of around $15.17 trillion, a 12.31% CAGR is expected.
Understanding Payment Gateway in Brief
The front-end technology, the payment gateway, is essential for the electronic payment processing system as it helps send customer details to the merchant’s bank, where the transaction takes place.
Payment gateway technologies are constantly advancing with the revolutionizing digital world, technical capabilities, and the taste of new customers.
- Formerly, terminals used the customer’s needed paper signatures and magnetic strips to accept credit cards. Later, the chip technologies development removed the signature phase for a personal identification number (PIN) typed into the payment gateway hardware.
- Today, customers can reap the advantage of contactless purchases using their phones instead of plastic credit cards.
Type of Payment Portal
A payment gateway architecture varies, whether it’s an online payment portal or an in-store gateway.
- To let your website communicate with the payment processing network, online payment gateways would demand application programming interfaces (APIs).
- On the contrary, in-store payment gateways need a POS terminal that links electronically with the payment processing network using an internet connection or a phone.
Payment Gateways include the Following Stakeholders
Merchant – Any person or business making the sale.
Cardholder – Customers who make the purchases.
Card Schemes – Credit card organizations that handle the card, such as American Express, Mastercard, or Visa.
Issuing Bank – A financial institution holds customers’ accounts, from a credit card account to checking one linked with a debit card.
Acquiring Bank – A financial institution that holds the merchant’s account.
How Does a Payment Gateway Work? (step by step)
Step 1: Use the Card
A cardholder shops on the merchant’s eCommerce website.
Step 2: Verify the Action
The payment gateway first checks the action performed with the issuing bank to ensure the availability of the funds. It will confirm that the transaction wouldn’t exceed the customer’s bank account balance or credit limit.
Step 3: Card Scheme Receives Details
The payment gateway then sends the encrypted card details to the card schemes for transaction processing.
Step 4: Permission for Transaction
To complete the transaction, the card schemes permit the transaction, and next, the payment gateway sends the details back to the merchant’s website.
Step 5: Make Transaction from Acquiring Bank
The payment gateway then sends the customer details to the acquiring bank to transfer money from the customer’s issuing bank account to the merchant’s account.
What Is The Process For Receiving Payments?
Merchants need three things to receive credit card payments:
- A merchant account;
- A business bank account; and
- A payment processor.
The payment is transferred from the payment processor to the merchant, a temporary holding account. Next, the payment is transferred to the receiver’s bank account. The money stays temporarily in the merchant’s account to extract recalled payments’ incidences.
First, you must set up these accounts in the payment received process.
Merchants’ accounts are of two types that hold money in various ways:
This account is similar to a bank account, set up only for you. This process involves lots of underwriting, and the account provider performs a risk analysis before setting up an account for you. Being an owner of this account, you can set custom holding times, negotiate rates, and more. Brick-and-mortar stores may opt for this account to receive online payments.
This account holds money that’s shared with other companies. You can quickly kickstart with this account, but you will have less control over this and can’t even negotiate transaction charges. This account is best suitable for eCommerce business.
Some modern payment gateways free you from creating a merchant account as they integrate well with a merchant account. So, no need to create one. But, one aspect that may need clarification while choosing such a payment processor is its high price, for example, Braintree, Stripe, PayPal, and others.
Most Popular Payment Methods?
Nowadays, consumers pay for their items through credit cards, cash, debit cards, and digital wallets. A study says that by 2024, around 80% of transactions will be conducted electronically. Above that, approximately 74% of worldwide consumers said that they would prefer contactless payment methods, especially post-pandemic.
But the question is, which is the best one to opt for?
Let’s dig more to surface some distinct payment methods and their pros and cons.
The most common type of payment is a credit card. Credit card brands, like MasterCard, Visa, Discover, and more, extend credit to the buyers; they cover the cost of purchasing, and every month the customers pay their card balance.
Advantages of Credit Card Payments
- Credit cards facilitate customers to buy anything, even if it costs more than the cash they hold at the time of purchase.
- Retailers may benefit from credit cards as they usually buy more than a customer for their businesses.
Disadvantages of Credit Card
- Credit card companies charge a payment processing fee on merchants that may reach 3.5% of the purchase cost.
On the other hand, debit cards directly deduct money from the buyer’s bank account, despite extending credit to a buyer.
Advantages of Debit Card Payments
- With debit cards, customers can buy anything for the amount they have in their bank accounts with security and convenience.
- Debit cards allow customers not to carry a large amount of cash.
Disadvantages of Debit Card
- Post-purchase, the received amount takes some time to appear in the merchant’s bank account.
Also termed as a wire transfer, a bank transfer directly sends money from one person’s or business’s account to another person’s or business’s account. Such transfers are widely known for big purchases, specifically real estate purchases.
Advantages of Bank Transfers
- It charges a one-time fee for the sender and receiver.
- No percentage-based commission is involved that one needs to pay in a credit card transaction.
Disadvantages of Bank Transfers
- Not practical for everyday purchases.
- Need planning and connecting with a bank representative.
- In small purchases, one-time wire transfer charges may seem excessive.
Electronic payments to one’s bank account are direct deposits without needing a paper check or cash.
As the name indicates, this payment method permits buyers to send the charges directly to the merchant’s account. With the direct debit mandates, users can request their banks to approve regular payments.
By removing the risk of theft or loss, direct deposit is recognized as a safer payment method, specifically for non-eCommerce purchases. Also, no mediator is required; hence, it’s the fastest way to transfer money.
People use direct deposit payments, like salary payments or subscription-based fees, to schedule recurring expenses. With the emergence of new solutions, it may miss its fame but will be mostly-picked always up.
Many businesses conduct direct deposits via their banks. Receiving payments through direct deposit boosts your savings by facilitating you to set up automatic transfers into a savings account.
Advantages of Direct Deposits
- Funds are available immediately.
- Faster and safer than checks.
- It saves you from going to the bank.
Disadvantages of Direct Deposits
- Money may cover overdraft fees.
Also known as mobile wallet payment options, app payments perform via applications that run on tablets, smartwatches, and smartphones and link to the customer’s debit cards, credit cards, or bank account.
For example, Google Pay, Apple Pay, and Samsung Pay.
After setting up a mobile wallet account, one can use such an app payment method to pay for purchased items at sellers’ places that accept mobile payments.
Advantages of App Payments
- Better convenience to customers in online and offline purchases.
- App Payments mode is growing; in 2021, consumers spent around $1.786 billion worldwide using mobile payments.
Disadvantages of App Payments
- Merchants in a brick-and-mortar store will require a new payment terminal to accept the payments.
- Some apps have transaction limits for their customers that appear to be less than the limits of most credit cards.
An electronic check, eCheck, is a traditional paper check’s digital version. Using an eCheck, you can electronically withdraw money from the payer’s checking account and deposit it into the payee’s checking account over the Automated Clearing House (ACH) network.
The Automated Clearing House (ACH) network, an e-network US financial institution, uses such payments.
A business can use an ACH merchant account to withdraw payments for goods and services straight from their customer’s bank account.
Advantages of Electronic Check
- More advanced security features than paper checks.
- Diminish the fraud risk.
- Pay directly using a computer or smartphone within minutes.
- No need to print the bill, and more than you need to do with paper checks.
- It saves time and money as everything is accomplished electronically.
Disadvantages of Electronic Check
- Customers can question about a transaction or chargeback if they get stuck with any received eChecks issues within 40 days only.
- ACH direct payments permit consumers to file a dispute within 60 days.
Most businesses accept cryptocurrency as payment for goods and services through cryptocurrency payment gateways that are payment service providers. Some stores and brick-and-mortar retailers are starting to accept cryptocurrency. They generally use POS hardware connected to one of the payment service providers.
Advantages of Cryptocurrency
- Charges fewer fees
- Available to everyone
- Allows to pay from anywhere
- As cryptocurrency is decentralized, user details are not needed.
- Cryptocurrency is crafted to be peer-to-peer with no need for 3rd-party.
Disadvantages of Cryptocurrency
- Cryptocurrency costs are volatile, which means your cryptocurrency’s value will change over time.
- Cryptocurrency networks demand a transaction fee.
- Cryptocurrencies are not backed, regulated, or guaranteed.
- After an exchange is completed, it gets locked onto a blockchain and can’t be revoked.
Hire digital wallet app developers to integrate digital wallet services that help users pay at stores that accept cashless or mobile payments. This mode of payment is gaining popularity with time, especially post-pandemic, as it provides contactless payment without needing to touch a credit card reader physically.
Advantages of Digital Wallets
- Provide ease and convenience of paying with a watch or phone.
- Offer bank-life services, and you can make payments without a bank account.
- No need to carry cards that can be stolen, lost, or worn.
- You can check recent transactions using your phone.
- Saves time by allowing the usage of debit cards.
Disadvantages of Digital Wallets
- It may have security concerns.
- Risk of interception as hackers can access data whenever details are transferred using a wireless network.
- Loss of a digital wallet may lead to information loss stored in your mobile wallet.
Choosing The Right Payment Gateway Involves Several Factors
You should choose the right payment gateway that may fit your business model; otherwise, you may lose lots of money and customers. Below are the factors you should consider while choosing a payment gateway:
Consider Fees and Service Agreement Requirements
It would help if you thought about the total cost that you would need to pay to use a payment gateway:
- Setup fee
- Monthly fee
- Transaction fee
Most payment gateways charge 2.9% + 30ç transaction fee. It may be expensive for high-value transactions. So, go with a payment gateway that charges a low transaction fee and provides services for a fixed monthly charge.
Even if the payments are approved instantly, money takes a few days to get settled in an account, during which it’s held for about 1-7 days, depending on the payment service provider. This time permits refund handling and chargebacks.
A payment model businesses use to charge their consumers at predefined intervals, which can be yearly, monthly, weekly, or custom intervals for the items they purchase.
Subscription-based services, such as Netflix-like applications, run on a recurring payment model. The provider should save and store the customer information for future transactions, charge credit cards automatically on pre-decided subscription schedules, and allow failed transactions to retry again. Or, you need to perform that manually.
Businesses like telecom, newspaper and magazine subscriptions, SaaS apps, and gym memberships offer usage-based billing.
Recurring billing is divided into two categories:
- Irregular or variable recurring billing
- Regular or fixed recurring billing
Multiple Currency Support
For international business, you must ensure that the payment gateway you choose should hold the caliber to handle payments from different countries and currencies. It’s essential to pay the customers in their preferred currencies. Also, you should check the amount you need to pay for foreign currency transactions.
You can host a payment gateway off-site or non-hosted. Hosted gateways diminish the risk of storing delicate details on your website. You need to redirect the customers to another website.
If customers need to perform this long process and follow it, they are not likely to try again if the transaction fails because of any error or glitch. That’s why businesses with high-transaction value wouldn’t integrate non-hosted to their stores.
Mobile Payment Support
Various customers use their tablets or mobile phones to shop online. So, your payment gateway should also support mobile payments. This way, your customers will get the flexibility to pay you anyway without any need to use specific devices.
Types Of Cards Allowed
Credit cards, like MasterCard, Visa, and more, are accepted mainly through various payment gateways. Although, if your consumers generally pay through other types of cards, like debit cards, you need to ensure the payment gateway you pick should support that card.
As your website holds sensitive financial information, you must prioritize your payment gateway’s security to receive online payments. Be sure that different payment gateways have different security standards. So, you should pick level-1 PCI DSS compliant. Choose a payment gateway that helps in fraud detection and arrives with screening tools to safeguard your business from fraudulent transactions.
Some payment gateways set an upper limit on the number of transactions you can process monthly. Small businesses wouldn’t find it a problem. But for companies processing many transactions or dealing with high-valued goods and services, you should know such limits; otherwise, be all set to lose your potential customers.
Easy Integration Process
Most payment gateways offer in-detail instructions on integrating with leading eCommerce platforms.
Choosing a payment gateway system that leads to a smooth payment process is essential. Please select a payment gateway that eases and facilitates consumers to make payments on the site by choosing a payment method they want.
A merchant account is essential to receive payments through an online payment gateway. When customers pay online using a payment gateway, the money is transferred temporarily to a merchant account separately. It’s different from the existing bank account. A merchant account’s cash must stay there until the customer’s processing bank approves it. After the approval, the money is sent to the bank account.
Some payment gateways don’t need a merchant account and send money straight to the seller’s account. For such a service, it may charge a higher amount.
Make Customers Feel Safe and Secure
With the increasing improvement in the online shopping experience, customer expectations from eCommerce sites are also rising. Customers want to shop from high-quality websites that provide secure payment options.
So, you need to ensure that the eCommerce website developers choose a payment gateway that is certified for keeping track of information security standards, such as PCI-DSS.
Make Checkout Easy on All Devices
Studies say about 79% of smartphone users have shopped online using their mobile devices lately, in half a year. In 2021, approximately 62.24% of mobile phone owners were there, and these figures are surging with time.
So, a website owner should offer an adaptable checkout experience well-optimized for different network types and mobile devices.
24×7 Customer Support
Various payment gateways provide customer support through emails or tickets that demand customers to follow instructions manually to fix an issue.
If you want to listen to your customers’ issues by talking to them, check if your service provider offers live technical support round-the-clock or during working hours so they can resolve the technical problems.
Before you choose and implement a payment gateway provider. Or you can do one more thing; you may hire a mobile app development firm with related technical aspects of payment gateway integration.
So, choose the best, right, and business-suitable payment gateway at a reasonable price.