What Are Payment Gateways and What Types Are There?

Payment Gateways Explained

In the year 2018, Shape security reported that about 90% of the login attempts on the various e-commerce websites were unauthorized or in a broader sense were just hacking attempts. Isn't that a huge number? This alarming figure is enough to justify the importance of a reliable and good quality payment gateway for your e-commerce business. Payment Gateways fights these hacking attacks in real-time by encrypting the information being exchanged between the vendor and the buyer in the payment portal.

We all have experienced online shopping, do we buy all that we put in our cart? Well, the answer is No. This scenario can be termed as “shopping cart abandonment”, but why does it happen? The reasons could be many ranging from technical issues to the absence of desired payment options or an enhanced in-store experience. With so many concerns to address, the biggest question that arises here is how to choose the best payment gateway for your e-commerce store that not only ensures the security and convenience of the consumers but also minimizes any risks.

A payment gateway can be referred to as an electronic cash register used by the merchants to process credit card payments. The right payment gateways are not only reliable to use but also offer a secure experience to the buyers. A high-quality payment gateway also reduces the load time substantially. The entire process accomplishes in the following three steps –

  • Encryption
    An exclusive and private connection is established between the seller and the buyer or the retailer’s server and the buyer’s browser.
  • Request
    Once the payment processor receives the payment request, it validates it with the respective financial institution or the credit card company.
  • Fulfillment
    Once the details are validated, the transaction occurs.

In the above extract, a term called the Payment processor was used. Keep reading the article further to simplify the difference between a payment processor and a payment gateway. These two terms may sound synonymous but have some noticeable distinctions.

A payment processor is mainly responsible to analyse and transmit transaction-related information to the respective financial institution whereas a payment gateway carries out all the functions mentioned above.

Redirects

In a redirect payment gateway, the customer is driven to the PayPal payment page to complete the transaction. It is particularly a good option for small businesses. They get to benefit from the convenience and security offered by a platform like PayPal.

On-Site Checkout, Off-Site Payment

For example- Stripe. The checkout will happen on the website itself but the payment will occur at Stripe’s back end. This also is a simple payment gateway option but like redirects offers some restrictions on your control over the user’s experience. Katie Keith also supports this idea.

On-site Payments

This is a popular idea amongst the larger businesses. As the word implies, they handle the entire payment process on their servers themselves, hence exercise more control over the same. Also, let us not forget to mention here that with great control comes responsibility too.

Businesses must make use of payment gateways like Paypal and Stripe because it is always wise and safe to let the third party site handle the sensitive data of your users. To ensure that the connection between your site and the payment gateways is always encrypted, don’t forget to incorporate SSL technology. This will help you to have secure payment communication over the internet.

Compare the Different Payment Gateway Solutions to Find the Right One for Your Business
  • Paypal
    It is a type of redirect payment gateway and has a huge customer base. PayPal hosts two services one at a cost of as low as $0/ month, another at $25/ month, this allows checkout features customization. In both the above options, PayPal incorporates fraud protection with no extra cost. PayPal's processing fee is 2.9% and an additional fee of $0.30 per transaction.
  • Square
    This payment gateway cum credit card processor is particularly used for small-scale businesses who need a method to process credit card transactions especially in person. The processing fees for this payment gateway are 2.75% with an additional expense of $0.15 per manual transaction.
  • Stripe
    As mentioned above, Stripe is a go-to payment gateway for companies that handle transactions in a bulk. The types of payments it particularly focuses on are SaaS, mobile e-commerce, non-profits, or platform-based payments. Stripe charges a processing fee of 2.95% with an additional cost of $0.30/ transaction.
  • Apple Pay
    As the name implies, Apple’s payment gateway Apple Pay is used by the merchants to facilitate transactions of clients who use Touch or Face ID and the ones who pay using their electronic wallet. Apple pay charges the processing fee of 3% with no additional cost for merchant accounts.
  • Amazon Pay
    This payment gateway has emerged out to be a highly popular and attractive option due to the number of plugins that it comes along with. Amazon Pay charges a processing fee of 3.9% on international transactions and 2.9% on domestic transactions. In both cases, it charges an additional fee of $0.30 per transaction.
  • Authorize.net
    The most striking feature about this payment gateway is that it allows the merchants to accept payments from dynamic processors like Apple pay, Paypal, various banks' credit cards. It charges a processing fee of 2.9% and an additional cost of $0.30 per transaction.
  • Adyen
    Its client base includes brands like Uber, Microsoft, LinkedIn, etc because of its capability to handle huge volumes of transactions and its suitability to accept both online and point of sale transactions. Though its processing fee differs depending on the payment method used.

Payment gateways undoubtedly add a great deal of security to smoothen the whole experience of online shopping. But you need to do a good amount of research and a clear evaluation of the parameters like price, security, and functions. Then only you will be able to choose the best payment gateway that suits your business needs.

For instance, find out what payment portal your competitors are already using to process payments, what is the payment gateway fee, how secure is their encryption, and so on.