Choosing a payment gateway for an eCommerce business is one of those major decisions that impacts your bottom line in many ways. That’s because different online payment gateway systems have varying processing times, currencies & countries serviced, transaction fees, platform compatibilities, and payment methods. Online payment terminology is rather complicated, reflecting the insanely sophisticated interconnections among the players in the payment market. If you need to wrap your head around a merchant account, payment processor, debit cards, electronic checks, payment getaways, and other PayPal's of the world – pour yourself a brutally strong cup of coffee and stick around.
Types Of Online Payments (EFT or Electronic Funds Transfer methods)eCcommerce payment options matter for the customer, giving them the flexibility of using their preferred one. The more eCommerce payment methods an online store offers to its clients, the more clients they will be able to attract & convert.
Credit Cards(Funds go directly from a bank account of a buyer to a bank account of a seller.) (The credit card issuer charges the buyer, who pays according to a schedule and terms set by their credit card issuer, while the card issuing bank pays the seller.)
Debit Cards(Cash, previously deposited by a user into the account, goes directly from the bank account of a buyer to a bank account of a seller.)
PayPal(Money previously deposited to PayPal by a user with registered account is transferred to the seller’s account with a transaction fee applicable.)
E-checks(Not a widespread method of payment. E-checks are a digital form of the archaic paper checks. Automated Clearing House /ACH/ are used to direct funds from a buyer's account into the seller's account. Due to the use of ACH for fund transfer, instead of the more expensive card networks, the transaction fees are lower.)
Wire Transfer or Bank Transfer(This method is widely used in Europe for bigger purchases when funds go directly from a buyer’s account into a seller’s account.)
Mobile Payments(A fast-growing segment with the expansion of AliPay, Apple Pay and Google Pay. Mobile payments eliminate the need to take your wallet out. They work similarly to the way debit cards do, but the user needs to get an account with the mobile payment service, and their personal information will be attached to an e-wallet in their mobile device. This service is often referred to as digital wallet or e-wallet.)
What Is a Payment Gateway?
Payment Gateway (PG) is a provider of the software service which enables a fund transfer authorization between an eCommerce merchant and a client, charging a percent of the transaction’s value. The Gateway is also responsible for securing the details of the chosen payment method (for example, encrypting the credit card).Now explained further in simple English: The payment gateway provider is a service that works as a mediator between an eCommerce shop and a bank with its payment processor. It takes the responsibility of authorizing your customer’s payment into your accounts, putting its seal of approval on a transaction. It also makes sure the payment details are secure during the process. Because there is not too much due diligence going into the process of verifying the merchant’s reliability, there is a widespread practice of freezing accounts by some Payment Gateway providers and the transaction fees are quite high, reaching up to 3%. Payment gateway integrations are provided by companies like Stripe, PayPal and Authorize.net.
The Difference Between a Payment Gateway and a Merchant AccountIt’s now time to understand the difference: Payment Gateway vs. Merchant account.
A merchant account is a special bank account provided to an eCommerce business based on a thorough background check, which includes checks of the website, credit history, T&Cs, procedures, compensation plans, and even the physical availability of inventory and services offered.Getting a merchant account is a more complex procedure than simply integrating a payment gateway, as it allows a business to then accept payments bypassing the payment gateway as an option. A retailer isn’t required to have a merchant account in order to use most of the payment gateway companies. A regular business account will suffice.
Payment Gateway Integration Methods
Hosted SolutionIn a hosted gateway environment, the customer is redirected away from your eCommerce website onto the payment provider's site. This is a great option for small businesses, as they don't need to be PCI compliant. It is not an optimal solution for bigger players, as it lowers conversion rates and decreases brand credibility.
Direct Post integrationThis is a method that’s similar to the hosted solution because users don’t need to be PCI compliant, as the data still is not stored on their servers, but rather instantly goes to the payment getaway and processor after a client clicks “Buy.” Even though in this case the client never leaves your website, the Direct Post solution is not entirely secure.
Integrated Method (for PCI compliant eCommerce)This method provides full control and total responsibility because the company keeps all the credit card data on its servers. It allows for lots of flexibility in terms of customization, but involves significant investment in terms of obtaining PCI compliant status and maintaining and securing all the data. Recommended for medium-sized and large eCommerce merchants.
How To Integrate A Payment Gateway For eCcommercePayment gateway development solutions are all different and depend on a myriad of factors. Lets’ spell out the main steps an entrepreneur needs to consider:
- Understand whether your business can operate with a payment gateway integration solution that does not require your own website to be PCI compliant. Basically, unless you are a big eCommerce operation, you can go with hosted or direct post integrations.
- Compare the characteristics of the best eCommerce payment gateways in terms of:
- Currencies serviced
- Countries supported
- Supported credit cards (Visa, Master Card, AmEx, etc)
- Fee structure:
- Set-up fee (Authorize.net charges $49)
- Monthly fee (PayPal Pro & Authorize have them)
- Local & International Transaction fees (they vary from 2 to 3% in the industry)
- Payment methods available (ACH, Visa Checkout, WeChat, Apple Pay, etc)
Best Payment Gateway Providers
Paypal305 million users, and a massive 87% of all online buyers use this payment system. Not having PayPal integrated with your eCommerce website is a loss for a merchant, as so many people have some cash in their PayPal accounts (with the average PayPal user having $485 in their account). This is why many entrepreneurs include PayPal as an additional payment gateway, in addition to credit cards. The PayPal fee structure is on the expensive end of the spectrum in the industry, but it comes with huge brand awareness, amassed loyal clients, and top security features.
- USA transactions will be charged at 2.9%
- International Transactions are charged at 3.9%
- Additionally, every PayPal transaction worldwide has a fixed charge of $0.30.
- No setup fees are charged by the company.
Stripe2500+ employees, Stripe is quickly gaining popularity and increasing its share of the PG market pie. A highly customizable solution with lower fees is available through an API. Stripe charges the same fees worldwide as PayPal does for the USA market: $0.30 + 2.9% transaction fee. No setup fees apply.
Google Pay100 million users worldwide, Google Pay grew by more than double in the two-years since 2018 when it had 39 million users. It was in 2018 that the company consolidated all of its payment solutions under the single umbrella of Google Pay. This contactless payment platform charges transition fees of 2.9%. The digital wallet is available on Android, Web, and iOS.
The Cost of Payment Gateway IntegrationWhen it comes to payment gateways and eCommerce, integration cost is a big concern for many smaller businesses. While there is no definitive answer on how much it will cost to set up a payment gateway, the general rule of a thumb is this: Of the solutions we reviewed here, the set-up fee of $49 is charged only by Authorize.net, with major solutions providing all the documentation needed for integration free of charge. So your integration price will depend on the scope of work performed by hired specialists to get your:
- Merchant account
- SSL certificate
- PCI certification
- Systems integration performed according to provided guidance and documentation