Payment Gateways & Payment Processing: The Ultimate Guide
In theory, a payment gateway is a tool or service that manages the approval or denial of transactions that takes place between you (as a merchant) and your customers who choose to purchase from you, while the payment processor performs the duties to make the transaction happen.
To better understand what the differences are between a payment processor and a payment gateway, let’s look at how we can define these two vital elements of e-commerce.
What Is A Payment Processor?
To ensure that your customers can purchase your products online, you will need to accept credit card payments. A payment processor is a service that communicates all financial transactions that are directed from your store to an issuing bank and the acquiring bank.
Where physical, in-store card payments are concerned, a payment processor is needed to establish the transaction. The payment processor carries a cardholder’s information to your banking institution in a secure setting. The cardholder’s funds will be deducted and the transaction will take place as your account is credited.
Other than that, strict security measures are put in place by the payment processor to ensure that that customer’s card information matches. Fraudulent purchases may occasionally occur, so a decent payment processing company will have best business practices in place to ensure that does not happen.
What Is A Payment Gateway?
The ecosystem that supports online payment processing is known as payment gateways, and these enable your customers to make purchases from your e-store. As an online merchant, you will need to understand the basics of how payments are processed from a cardholder’s account to yours.
A payment gateway works as the intermediary between you and the customer to ensure that all transactions for purchases are made swiftly and securely. It is very similar to a payment processor as a method to transmit payments between your customer’s bank and yours, however, payment gateways are used for e-commerce or cardless transactions.
By choosing to integrate the software of a payment gateway on your site, you will allow a payment gateway to process these transactions by managing the cardholder’s private information so that you can run a trusted e-commerce business.
Should I Use Both A Payment Gateway And A Payment Processor?
If you need to accept credit and debit card payments online, you will need to have a payment gateway and a payment processor to set things in motion.
If your online business facilitates these elements, your e-store can then open its doors to a primary marketing goal that aligns with your payment structure. This will make sure you can reach your clients through a wider range of online methods. This can include payment pathways that accommodate more than one method that caters to your target market.
As a business, you may also need offline options to charge your customers, such as at a point-of-sale, or charging them over a phone call. In this case, a payment processor would suffice. However, in today’s trade, you may want to consider having both online and offline payment options readily available for your clients.
In retrospect, the payment arena has grown to accommodate a seamless purchasing experience across a plethora of sales channels and devices, making it as vital as ever to be on top of your business game.
A payment gateway may also be used to integrate purchases with your CRM software or even onsite transaction processing from your point-of-sale system or mobile devices.
Avoid providers that make use of a third-party gateway. This will complicate matters in the long run, so instead, make use of a merchant account and payment gateway from one provider. This will minimize errors, speed up transaction processing, and process integrated payments securely.
How Do You Choose A Secure Payment Gateway?
Your e-store relies strongly on a suitable and flexible payment gateway. You now have the choice of great vendors at your fingertips, making it easy to find the solutions and integrations that work best for you and your customers.
It’s important to list your estimated volume of monthly transitions, required user experience, currency requirements, hosting features, and available integrations that will support your e-commerce platform.
Choosing a trusted payment gateway to cover a variety of payment options is as beneficial as having stock available when it’s requested. However, you may need to look into trusted, high-quality payment options that will encourage payment at checkout, instead of forcing customers to abandon their carts.
Why Are Payment Gateways Needed For E-commerce?
Credit card fraud is severe and frequent. It poses a great threat to your business and a reliable payment gateway can help to cushion these transactions that may cause legal matters that could have otherwise been avoided. Payment gateways create a path for merchants to process credit, debit, and other forms of online payments.
Having a payment gateway as your back-up with online transactions ensures that your customer data remains encrypted and secure. If you have an account and website available for integration, most of the work is already done, since minimal maintenance is required on your end.
Most online shoppers are already familiar with the payment options and e-commerce technology out there, so stick to the payment gateways that are commonly used.
Want to know another reason why a payment gateway is needed for e-commerce? Your customers remain on your site during checkout without having to be navigated to a new page, which adds on to the seamless experience that you should strive for when creating and managing your online store.
So before we touch down on what you need to do to get a payment gateway, you’ll need to have access to a merchant account. This will allow your business to accept credit card payments and to make use of a payment gateway to convey online payment data.
The payment service provider you choose or any other financial institution that manages your payments can provide you with a merchant account. Once you are set-up, you’re ready for the next step in online payment processing.
Obtaining A Payment Gateway
We’ve mentioned that a payment gateway can protect your business from fraud and when you are shopping for a payment gateway that works for you, you need to make sure that the one you choose is PCI-compliant and enables SSL certificates - the code on your web server that allows for secure online communications.
What else do you need to consider?
Choosing a suitable payment gateway resolution for your small business e-store will determine the success of your business. Make sure your payment gateway provider can offer you a package that works for your business.
Ask for the features that a payment gateway provider can deliver, including terms and pricing, before you choose integration.
Communicate the changes of service with your provider before you accept any contract.
Look for a provider that has a good PCI rating that offers a full-service solutions package.
Think of your payment service provider as a flexible platform where you can enjoy the integration of payments, acquisitions, alternative payment methods, shopping cart integration, high risk payments monitor, and anti-fraud services.
The payment gateway you choose will definitely have an influence on your sales and security, so always make sure that you check the PCI compliance and fine-print of the provider you are interested in.
Understand the rates and monthly fees that the provider will ask for every transaction since this will have an effect on your bottom line too.
Strategize the best payment gateway for your niche and what your customers want. What are the most convenient ways to facilitate the preferences of your customers?
Opt-in for multiple gateways to accept payments if you are not sure about one certain gateway because, at the end of the day, you do not have to commit to one payment gateway only. Employing more than one gateway will create better coverage for your shoppers.
If you do end up with a 3rd party page, you can request for check-out pages to look like they do on your e-store or website. Most payment gateway providers can customize their payment pages.
How Do E-Commerce Payments Work?
Understanding the intricacies of online payment processing is a task all on its own. A shopper shows interest in your product online and chooses to buy it, and that money, whichever payment gateway and processor used, will make sure you receive payment.
Selling online requires you to have this technology installed - a gateway that links your e-store to a financial institution that gathers payments from the customer.
The Importance Of A Payment Gateway
Let’s look at a summary of what a payment gateway does for you and how vital it is to have a merchant account:
You’ll receive online payments through multiple payment options.
As a merchant, you will be able to manage your account and all matters related to payments from the account’s dashboard.
You may plan and structure your business based on the analytics and the reports you will receive.
You will be able to resolve any disputes or issues from the resolution center and ask for support from the provider.
Obtain PCI DSS compliance.
Online payment processing is an operation that essentially takes place under the watchful eye of the payment processor. They handle your transactions as a merchant who offers products to your customers, and in every payment process, these participants are always present, but it also includes the acquiring bank, customer’s bank, and yours.
What’s In It For Payment Gateways?
Like any business out there, financial gain is what drives it. It’s no different when it comes to payment gateways. As a rule, there is an applicable MDR (Merchant Discount Rate) that is based on every transaction that takes place.
But as you navigate your way through the provider you are interested in making use of, check and ask for set-up fees, as well as maintenance and integration costs.
As a general rule, you can expect to shell out on at least three elements:
Transaction Fees: As a merchant, you will most probably pay the fixed fee and the percentage of the transition which falls between $0.00 and $0.25 and 1% - 5% depending on the provider you choose.
Monthly Costs: Usually this ranges from anywhere between $10 to $50.
Set-Up Costs: This a once-off fee, and while there are e-commerce platforms that already have an integrated payment gateway in place. If not, you can expect to pay anything up to $250.
Take a look at our selection of Top 9 Online Payment Gateway Providers For Your Ecommerce.
Now that you have a better understanding of what the main differences are between payment gateways and payment processors, you can do some deep-diving about the functions, pricing, and security that will meet the needs of your e-commerce business.
A seamless shopping experience equals a happy shopper, and while online payment processing may seem like an effort, your options will need to be considered with care, so that you, as an online business owner, can have peace of mind and business success