How to choose an eCommerce payment gateway
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Finding a payment solution that is secure and convenient is a major headache for eCommerce businesses, and it’s easy to see why. Ecommerce businesses need payment gateways for one reason – customers like to pay with credit and debit cards. Research shows that a whooping 80% of online shoppers choose to pay with credit and debit cards. So how can eCommerce businesses choose payment solutions that match their customer’s expectations?
What is a payment gateway?
Like a virtual cash register, a payment gateway processes card payments on behalf of businesses – online and offline. This involves checking the validity of the customer’s card details and ensuring the availability of funds to pay your business.
What’s the difference between a payment gateway and a payment processor?
Payment processors and payment gateways can both feature hardware and software components, so they can be tricky to tell apart based on components alone. While both terms might sound similar, there are key differences between the two.
To put it simply, a payment processor handles data digitally. Its role is to evaluate and pass on encoded transaction data to issuing banks. In addition to handling data as described above, a payment gateway also approves funds transfers between the customer and the business.
Essentially, a payment gateway can be considered a virtual “Point of Sale” (POS) terminal, while the processor usually works behind the scenes to make things happen.
What types of payment gateways are there?
Redirect: To begin the payment process, the customer is redirected to a different provider’s page. With PayPal for example, the customer is redirected to PayPal’s page to complete checkout. While this is more convenient and secure for retailers who enjoy the advantages of major platforms such as PayPal, it also leaves the business with much less to no control over the process while increasing the number of steps required by the customer to complete the transaction.
Onsite checkout, Offsite payment: A prime example of this payment gateway type is TailoredPay which combines frontend checkout on your site with backend payment processing. While this process is as seamless as the redirect above, businesses have some control over the full customer experience. However, you will need to carry out your own due diligence on the capabilities of your chosen payment gateway options.
Onsite Payments: This payment gateway type is popular with large scale eCommerce businesses that prefer to manage payments through their own servers. Businesses remain fully in control of their customer experience, but at the cost of increased responsibility for delicate trade-offs between the customer experience and effectiveness.
How do payment gateways work?
Each time a customer initiates an order, a process is triggered. This process only takes seconds and begins after the customer enters card details on the browser to complete their purchase.
Here’s what happens next:
- Encryption: The payment details entered on the web browser are encoded (converted into a different format) for exclusive use within this transaction.
- Transfer: Within a secure environment, the payment gateway transfers the encoded transaction information to the payment processor.
- Request: The payment processor makes an authorization request to the customer’s financial institution to accept or decline the transaction based on the availability of funds.
- Fulfillment: Once the transaction is authorized, the business is cleared to fulfill the order.
This entire process is usually completed seamlessly in 2-3 seconds, however, this isn’t all that the payment gateway does. The payment gateway also takes responsibility for tasks such as calculating tax where applicable and monitoring orders to identify fraud.
What is a merchant account?
Once payment processing is complete, how do eCommerce businesses receive cleared funds?
A merchant account is a specialized account with which businesses can receive customer card payments, unlike a regular business bank account. Once funds are cleared, they are held in these specialized accounts for a short time, before being transferred to the business’ bank accounts. For eCommerce businesses, merchant accounts streamline the process of collecting payments from multiple payment sources, while easing the processing of refunds and chargebacks. Merchant account and payment gateways go hand-in-hand, but some payment solutions only offer standalone payment gateways while solutions such as TailoredPay offer both payment gateways and merchant accounts. Merchant accounts combined with payment gateways ease the process for eCommerce businesses looking to accept payments online. To further illustrate this, here are a few examples of companies that offer standalone payment gateways vs. payment gateways + merchant account combos.
Hidden truths about payment gateways
All payment gateways are not created equal, so before deciding on the ideal payment gateway for your business, it is important to understand the strengths and limitations of each option.
Below are a few of the main limitations you might expect:
- Variance in accepted card types: While most payment gateway providers advertise how universal they are, the truth is that there are specific processing portals and card issuers that they can’t accept payments from. This could be either region-specific or issuer-specific. Many gateway providers highlight payment acceptance across Europe and North America, but don’t offer any specifics on what type of payments aren’t accepted.
- Exclusion of international shoppers: If you’re looking to sell your products/services internationally, your chosen gateway should provide a global solution. Merchants targeting a broad international clientele need to check the international acceptance of their chosen payment gateways. For example, American customers may not be familiar with Alipay – China’s most popular payment gateway. It is also important to note that even when accepted, cross-border transactions may cost more – as certain payment gateways may charge additional fees for international transactions.
- Security concerns: Research shows that a significant number of customers show security-related concerns over making purchases online. While security is a key feature of any good payment gateway, here are some unavoidable vulnerabilities worth considering:
- Malware. Hackers can infiltrate a user’s account using malware to make fraudulent transactions through secure payment gateways.
- Data Breaches. While TLS encryption enables payment gateways to process sensitive data (e.g. card information), the data is still at risk of a security breach as long as it remains on a server.
- Mobile Security Risk. Lack of control over who has access to customers’ mobile devices still presents a security risk.
Things to consider when choosing a payment gateway
When choosing a payment gateway, it is important to get clarity on what features you should expect – and whether or not these features are a match for your unique business needs. Here are some of the key features to consider:
- Security: The Payment Card Industry Data Security Standards (PCIDSS) is the gold standard for security compliance for digital transactions, so it is important to choose a payment gateway that is PCI Compliant. Choosing a PCI compliant payment gateway means that your customers’ payment information is kept secure, and you reduce your risk of incurring heavy fines or sanctions.
- Integration with other apps: Your chosen payment gateway needs to integrate with other apps that run on your website, as well as your existing accounting solutions. It is important to choose a payment gateway that aligns with your existing applications to avoid service disruptions (and a hit on your bottom line).
- Cost: It is important to understand the fee structure of your chosen payment gateway before you commit. Most payment gateways have a total operating cost which is made up of setup cost + transaction cost + monthly admin costs. Fraudulent transactions on your website would also attract additional fees.
- Payment options: If you already understand how your customers prefer to pay, you want to choose a payment option that aligns with their payment habits. Choose a payment gateway that offers multiple payment options, to reduce the number of problems you encounter in the long run.
Why you should choose TailoredPay as your payment gateway
TailoredPay offers the ideal solution especially for eCommerce merchants who have had negative experiences with mainstream payment gateways in the past. With much higher acceptance rates than other providers, TailoredPay offers businesses affordable, secure payment gateway and high-risk merchant account solutions that are PCI compliant and compatible with a variety of card types. For bonus points, there are no set-up fees and approvals only take 48 – 72 hours!
So, if you’re looking for a complete payment gateway solution that won’t hold you back, apply today and take your business to the next level.