Let’s get a few things straight…
More often than not, payment gateways are often associated only with online businesses. While that is true in principle, payment gateways can be used by brick and mortar businesses that also have online sales facilities. After all, they are simply virtual points of sale terminals that function much like the checkout counter in a store.
These payment gateways facilitate the secure receipt of payments from customers and verify their information and payment method before finally approving their purchase request. So as long as you have a website and intend to use it to sell your products or services, you will need to have a payment gateway.
How does it work exactly?
Except for a few differences, most payment gateways follow this basic procedure: Once the customer makes and reviews the order and submits it, a notification of the order is sent to you. Their credit card information is sent to your bank through the payment gateway, which forwards it to the customer’s bank for verification through the gateway as well. The customer’s bank then sends funds to your bank and the customer receives confirmation of their order once this is done.
Let’s talk options…
There are two main kinds of payment gateways:
- Hosted payment gateways
- Integrated payment gateways
We’ll take a look at each of them and you can see which one will work best for you, alright?
Hosted payment gateways
Examples of hosted gateways include PayPal Standard, Payza, Nochex and WorldPay. A hosted gateway takes the customer from your checkout page to the payment service provider’s (PSP) page. Here, the customer will make the payment and then be redirected back to your business’s website to complete the purchasing process.
Another way to do this is by having the PSP create an inline frame (iframe) which is simply a form that you can insert into your website. This way, you will accept customer’s cards without storing their information. The iframe is used to collect the payment information and relay it to the PSP to complete the transaction.
For both methods, refunds and cancellations are handled directly by the payment gateway’s website. You can have the notification URL set at the gateway’s website or in your payment gateway script so that for any activity, a notification will be sent to that URL for appropriate action at your website.
The advantages of hosted gateways are that customer credit/debit card details are secured by your PSP. It is simple because your PSP sets up everything including PCI compliance and customer data security, and you can customize the payment page with your logo.
The disadvantages are that some customers don’t trust offsite payments which can adversely affect overall sales. There is also the matter of not being fully in charge of the entire customer experience from start to finish since they have to leave your website to make payments and you have no control over that part of the process.
Apart from these two, there are other kinds of hosted gateways available today. Local bank integration, for instance, is much more direct since the notification data following the order request is sent back to you as the user is being redirected back to your website. The difference with the local bank integration is that recurring payments, refunds and cancellations are not supported so that you will have to do them manually. This makes it good for small businesses that only need single payment options.
Integrated Payment Gateways
This option connects your website to your payment gateway’s provided application program interface (API). Payment details are collected at your own site and sent to the gateway’s URL to complete the transaction. Notifications are then sent directly to your URL for finalization of the order.
There are different kinds of integrated payment gateways such as self-hosted payment gateways, API/non-hosted gateways and direct payment gateways. While they differ in the specifics, they all provide the general advantage of customer confidence and experience since customers don’t need to leave your website to make payments.
In addition, you have full control over the payment page and you can have the payment options available on any device that can connect to the internet, which is great for boosting sales.
Disadvantages include limiting your options to gateways that integrate with your website otherwise, you may have to use custom programming which can be expensive. You are also responsible for data security and PCI compliance, and you may have to get SSL security certification. An integrated gateway also requires a special bank account called a merchant account which is not available in all banks and requires some time to get set up.
How you can choose
When deciding on your preferred payment gateway option, you should examine the following:
These gateways work for a fee, whether monthly or per-transaction. You need to examine the terms and how much it will cost you in the grand scheme of things, and make the more affordable choice for your business. Don’t be afraid to start small before switching to a ‘better’ payment gateway, but don’t go too cheap, you may just get what you paid for.
If you are working with subscriptions or paid membership, automatic billing support is critical for recurring plans. Otherwise, customers will be forced to make monthly renewals which can affect their loyalty.
Consider the customer experience from the time they make a purchase to receiving a confirmation. Each gateway offers a different experience and you need to be aware of this so that you don’t have purchases being abandoned half-way because of the process.
This is a concern for those with an international clientele. You need to know which option is supported in the countries where your current and potential clients live.
There are many payment gateways out there, but you need to choose one that has been time-tested and proven to be secure, reliable and customer-centered. That way, you will be sure that your customers will enjoy the service and you will get value for your money.
Choosing a payment gateway is a critical decision that can have major implications on your business. It should therefore be taken under advisement and you should ask a lot of questions of your service providers before deciding on the one you want. All the best!
Lalit Sharma is an SEO consultant who runs a SEO house called Ranking By SEO. He is specialized in link building and other SEO related activities. You can also find him on Twitter, Google+ and his personal site.