How to Choose a Payment Gateway

Refresher: what is payment gateway, exactly?

For those of you who aren’t exactly sure what a payment gateway is, don’t worry. It’s something you’ve certainly used if you’ve ever shopped online. It’s also definitely something you will need if you are planning on opening an online business.

Payment gateways are third-party solutions that process transactions on behalf of online merchants. Simply put, they are paid services that enable businesses to accept their customers’ money on the internet.

When customers enter their credit or debit card information into an e-commerce site’s checkout process, it’s a payment gateway that’s authorizing the transaction instead of the online retailer themselves. These third-party services verify whether or not there is currently credit available, and, if there is, the sale is finalized.

Selecting the right service for your startup is one of the most important decisions during your online business’ journey. So make sure to take a deep look at the following considerations when shopping around for the perfect payment processor.

Things to consider:

Security

When you pick a payment gateway, you are choosing a company that will end up managing all your customers’ sensitive financial data. Any sort of mishap that can occur with a security breach could be disastrous for your online business’ reputation. You should take your potential payment gateway’s encryption standards into serious consideration. Some providers have tighter encryption methods than others. Typically, the safest gateways offer lower rates because they are able to achieve lower overall risk.

Apart from sensitive personal data being protected, fraud detection is another important feature by which to judge a payments processor. Some payment gateways, such as CyberSource, are specialists when it comes to proactively identifying and eliminating possible fraudulent activity.

Compatibility & Ease of Use

Your online business may be a one-person operation, or could have a whole team working behind the scenes. No matter what, having a user interface that’s easy-to-navigate helps your whole operation run more smoothly.

Also, is your potential payment gateway compatible with the other systems you are using for your company’s operations? How easy will it be to install and get the ball rolling?

The Look and Feel

How modern and user-friendly a payment gateway appears from the customer’s perspective is a major factor when it comes to finalizing sales. Indeed, picking a provider that looks reliable and functional for your buyers is critical. Some payment gateways bring customers off-site to complete the transaction, which is something that could end up losing you a certain percentage of potential sales.

After all, 75.6% of shopping carts were left abandoned, rather than being fully purchased, in the first quarter of 2018.[1] How much of that could be avoided with a smoother payment gateway experience?

Invoicing & Reporting

Some businesses need their payment processor to enable the download of detailed reports for record-keeping and operational purposes. Therefore, payment gateways offer different levels of reporting. This goes for invoicing capabilities as well.

Cost

How much you end up paying in fees will be a big weight on your decision making when it comes to which payments solution go you with. This really depends on how much you value the additional features that often cost a bit extra. Sometimes having detailed reporting with a sleek user interface is worth a little extra, but for some startups it doesn’t have to be.

With all of that in mind, here is one final consideration you need to weigh before selecting a payment gateway: which type to get.

“Traditional” gateways

Classic-style payment gateways, like Authorize.net, only handle the payment part, but still require you to get a merchant account on your own (which requires getting approved separately). Traditional gateways take longer to set up and only do half the job.

Sage Pay and Braintree are two other popular examples of old-school payment processors.

Full-service payment processors

These are easier to set up, mainly because they are an all-in-one solution that doesn’t require a merchant account to be set up. Modern, full-service payment gateway options include PayPal, Stripe and Braintree (all three charge 2.9% + 30 cents per successful card charge).[2]

These are frequently preferred by startup e-commerce operations, because of their ease of installation and general compatibility across multiple systems. Plus, the added benefit of not having to go out of the way to open a merchant account is a huge savings of time and effort.

References:

[1] https://www.statista.com/statistics/457078/category-cart-abandonment-rate-worldwide/

[2] https://www.paypal.com/us/brc/article/understanding-merchant-credit-card-processing-fees

https://stripe.com/us/pricing

https://www.braintreepayments.com/braintree-pricing

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