Payment gateways are the foundation of the global e-commerce sector. They enable businesses to process customer payments, whether online or in person. Your payment gateway choice is a make-or-break decision that shouldn’t be taken lightly, so this guide is here to help you make the right choice. Learn how a payment gateway works, its essence, and how to choose the best gateway for your business.
What is a payment gateway?
A payment gateway is a platform that lets merchants receive customer payments. It acts as an intermediary that receives a customer's card details, then encrypts and sends this data to the appropriate bank to authorize a payment. If the payment is approved, the funds are transferred from the customer's bank account to the merchant’s bank account.
Payment gateways don’t only process debit and credit card payments. They can also process quick mobile payments through Google Pay and Apple Pay, as well as via bank transfer. With the right payment gateway, you wouldn’t have to worry about processing online transactions.
What does a payment gateway do?
These are the key steps in a payment gateway’s workflow:
- Customer information. The gateway asks the customer to provide their credit or debit card details.
- Data encryption. Customers’ card details are sensitive information, so the gateway must encrypt them before transmission.
- Transmission. The gateway sends the encrypted transaction information to the card network (e.g., Visa or Mastercard). The card network then transmits the data to the customer's issuing bank for approval or rejection of the payment.
- Response. The gateway receives an approval or rejection, then informs the customer.
- Transfer. If approved, the gateway transfers money from the customer’s bank account to the merchant’s account.
Why is a payment gateway important?
A payment gateway lets businesses receive money from both local and foreign customers and in various currencies. Small or large payments can be processed within seconds, giving customers a smooth experience.
Payment gateways don’t only process payments; they do so in the most secure way. Your business can easily comply with data security standards (e.g., PCI DSS requirements) by choosing the right gateway. Along with payment processing, gateways also provide fraud detection tools to identify and block suspicious transactions.
Why do businesses need payment gateways?
A payment gateway helps your e-commerce business function reliably. With a proper payment gateway, you can receive payments from customers worldwide and fulfill their orders. If any payment dispute arises, the gateway acts as the mediator to resolve it, saving your business considerable time.
Imagine having to manually coordinate payments between each customer and their bank– that’s the stress a payment gateway saves you from, particularly for international payments. Gateways are the oils that smoothly grind the gears of the global economy.
Types of payment gateways
- Hosted gateways. In a hosted gateway, your customer will be redirected to the gateway's website to enter their card details and complete the transaction.
- Self-hosted gateways. In a self-hosted gateway, the customer inputs their card information and completes the transaction right on your website.
- API-based gateway. This type entails using an Application Programming Interface (API) to integrate the gateway into your website.
- Local bank integration. This type involves connecting directly to a local bank’s payment system. It’s only ideal if you target customers in a specific niche and region.
Hosted vs. Self-hosted
In a hosted gateway, your customer is redirected to the gateway’s domain whenever it’s time to make a payment. They’ll input their card details on the gateway’s domain and complete the transaction. Once completed, the customer gets redirected back to your website. This method is beneficial because the gateway handles all security measures and compliance requirements.
In the self-hosted option, the customer enters their card details and completes the transaction without leaving your domain. This method provides a more seamless customer experience and enables you to customize the checkout process. The downside is that you’ll be responsible for security and compliance, which requires technical expertise and effort.
API and server-to-server integrations
With an API-based gateway, the payment will be handled on the gateway’s system, yet without leaving your website. The trick is that the API enables instant communication between your website and the gateway’s system. This instant communication allows the gateway to receive card details, authorize payments with financial institutions, and send real-time information back to your website.
API gateways effectively combine the key benefits of both hosted and self-hosted gateways. The gateway remains responsible for security and compliance, while you’ll have significant control over the checkout process. However, the initial API setup on your website can get technically challenging.
White-label and custom solutions
White-label gateway solutions are developed by third parties for businesses. You can then customize this gateway with your unique brand details, including logo, fonts, and colors.
With a customized white-label gateway, your customers will get a smooth, unified experience when entering their card information and processing a payment. They won’t notice any difference between your website’s interface and the gateway’s interface. The gateway will handle complex backend technology, compliance, and security, while the frontend interface will mirror your website's design.
Virtual terminals and mobile gateways
Virtual terminals pair payment processing software with physical card-reading devices. Customers can insert, swipe, or tap their credit or debit card on this device to authorize a payment. Virtual terminals enable physical retailers to accept in-person payments as easily as they do online. You can even synchronize in-person payments with your online store’s inventory if you sell online and in-person from the same stock.
With a virtual terminal, you can also process Near Field Communication (NFC) mobile payments, where the customer holds their smartphone near the terminal, and payment details are wirelessly transmitted to the terminal for authorization.
Cryptocurrency payment gateways
Cryptocurrency payment gateways enable businesses to accept digital tokens, such as BTC, USDT, ETH, and DAI. Cryptocurrency transactions often have lower fees than fiat payments, especially for foreign payments. You can withdraw directly to your crypto wallet address or convert tokens to fiat and deposit into your acquiring bank account.
A drawback is that cryptocurrencies are volatile, with prices rising or falling sharply, which discourages businesses from adopting them. However, you can counter this volatility by accepting stablecoins, which are tokens pegged to a fiat currency to maintain a stable price.
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Payment gateway vs. Payment processor vs. Payment terminal
Here’s an illustration of how a payment gateway, processor, and terminal fit into the broader payment ecosystem:
- A payment gateway is the customer-facing online payments interface. It's the interface through which your customers enter their card details and initiate a payment to your merchant bank account.
- After a customer enters their card details on the gateway, the payment processor is the back-end service that communicates with the customer’s bank and receives authorization to withdraw money from the customer’s account.
- A payment terminal is the physical equivalent of a payment gateway. It’s a device that reads a customer’s card or mobile app to initiate a payment. After a customer swipes, inserts, or taps their card on this device, the payment processor communicates with the customer’s bank account to authorize the payment.
Costs and pricing models
Payment gateways charge three main fees: a setup fee, a recurring monthly or annual fee, and a commission or flat fee, or both, per transaction.
- The setup fee is a one-time fee you’ll pay to integrate the payment gateway with your website.
- The recurring monthly or annual fee is the gateway’s charges for continuous use of its platform.
- The commission, or flat fee, is usually a small amount paid on each transaction. The standard commission is 1.5% to 3%, and the typical flat fee ranges from $0.10 to $0.30. Some gateways charge both a commission and a flat fee, e.g., 1.5% + $0.20 per transaction.
How to choose the right payment gateway
Knowing how to choose the right payment gateway depends on your business needs. Many gateways exist to serve different markets, and you can conduct extensive research to make the best choice. The top factors to consider when selecting a payment gateway include:
Business size
If your business has low to medium sales volumes, your best choice is a ready-made payment gateway that can be set up and deployed within hours. You don’t have to stress about setting up the payment gateway —you’ll be given unique API keys to initiate the setup yourself, or you can have a developer handle the setup process.
However, if you have a large sales volume, you can select a white-label payment gateway that allows extensive customization. With large sales volumes, you can justify the higher upfront cost of choosing a white-label solution over a ready-made one.
Integration and API capabilities
Consider the ease of setting up the gateway and whether you can do it yourself or need a developer to handle it. The integration process varies depending on your website’s backend infrastructure, but the gateway always provides a reference API to guide you through.
Some gateways have a seamless integration process you can handle yourself, while others can be complex. If you have a limited budget, you’re better off with an easy-to-integrate gateway to avoid the extra costs of hiring a developer.
Payment methods
Confirm which payment methods your gateway supports. If it’s fiat, check which card networks and currencies are supported. Also, verify whether the gateway supports contactless mobile payment methods such as Google Pay and Apple Pay.
If it’s a cryptocurrency gateway, confirm which tokens it supports. For example, an ideal crypto gateway should support stablecoins like USDT and USDC, as they're less volatile than other cryptocurrencies.
Customer support
Excellent support is key when selecting a payment gateway, given the complexity of the initial setup and ongoing maintenance. You should have access to detailed user guides and documentation to resolve technical issues. If external help is needed, your gateway’s support team should be an email, phone call, or instant message away.
Scalability
Verify if a payment gateway imposes transaction limits or additional fees for processing higher volumes. Confirm additional compliance requirements for processing higher amounts. Your payment gateway should seamlessly handle rising transaction volumes as your business grows.
Security certifications and compliance
Security is non-negotiable given the sensitive nature of customers’ payment details. Every payment gateway should employ advanced encryption to protect these details and comply with industry data security standards, particularly the Payment Card Industry Data Security Standard (PCI DSS). Verify that your gateway complies with these requirements and has no history of negligent security practices.
Conclusion
Selecting a payment gateway provider is a critical decision, as it determines how reliably you can earn revenue to run your business. Consider your unique needs and follow the factors we’ve outlined earlier when choosing a payment gateway. If you need a crypto payment gateway, B2BinPay is your top choice, enabling your business to accept dozens of cryptocurrencies with low processing fees and swift crypto-to-fiat payouts. Choose B2BinPay today for secure and reliable payments.
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FAQ
Can a bank provide a payment gateway?
Yes, many banks provide payment gateways, either standalone or via partnerships with financial technology companies. These gateways are integrated with the bank’s services, including merchant accounts, accounting tools, and credit financing.
What is a payment gateway in e-Commerce?
In e-commerce, a payment gateway is a platform that enables online stores to accept payments from customers’ cards or digital wallets. They enable smooth transfer from customers’ accounts to your merchant account so that you can fulfill orders.
What are the risks of using a payment gateway?
Payment gateways can face data breaches and fraudulent transactions initiated by malicious actors. However, reputable gateways minimize these risks through advanced encryption and fraud detection algorithms to block dodgy transactions.
How do I pay with a payment gateway?
A payment gateway provides an interface for a customer to enter their payment details. Once the customer enters their card details, the gateway processes these details to authorize a payment from the customer's bank account. The process completes within seconds.
What is a disadvantage of a payment gateway?
Payment gateways incur transaction fees, and the initial setup can be technically challenging. Likewise, some gateways restrict payments from specific countries and currencies. You can mitigate these disadvantages by conducting thorough research and choosing a gateway that meets your unique business needs.
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