Payment Gateway: How to Choose the Right One

Payment gateways are technology platforms that authenticate and process financial transactions for online businesses. They are an intermediary between a business’s website and the financial institutions involved in the transaction. Global e-commerce sales are forecast to grow even faster, reaching USD 131.0 billion in 2031 and USD 161.0 billion in 2032.

Below, we’ll cover what businesses need to know about payment gateways, how they work. We’ll also explain how to choose a payment gateway that meets the specific needs of your business and your customers. Let's get started!

How Do Payment Gateways Work?

Payment gateways are the switching points that pass information from the merchant to the issuer and back to the merchant. The information they pass on is a request to the card issuer, who can then approve or decline the transaction depending on the customer’s bank account. The payment gateway then passes this approval or rejection back to the merchant.

Payment gateways are generally used for card payments, but can also enable alternative payment methods.

Given the sensitivity of the information transmitted, payment gateways must protect customer and financial data. To this end, they use a range of technologies. These include network tokenization and encryption in accordance with standards such as PCI compliance.

How to Choose the Right Payment Gateway for Your Business

Businesses have lots to consider when selecting the most appropriate payment gateway processor. In this section, we’ll suggest the key criteria you should use to judge prospective service providers.

1. Payment methods

Not all payment gateways accept all types of credit cards. For example, almost all payment gateways accept Visa and Mastercard payments, but a smaller percentage also accept Discover and American Express. Merchants must weigh the benefits of offering more card payment options to their customers against the higher fees associated with them.

In addition to the types of card payments to accept, merchants may also consider whether they want a payment gateway that integrates with popular digital wallets such as Apple Pay and Google Pay. The ease and speed with which customers can make online payments with digital wallets not only improves the customer experience, but can also lead to more sales.

2. Currencies and service area

Not all payment gateways are designed with the global business in mind. Merchants must consider whether they sell or would someday like to sell their products or services internationally and choose a payment gateway that works well in those countries.

For international sales, merchants can also select a payment gateway that allows customers to pay in their local currency. Multi-currency payment gateways automatically convert prices into the customer’s local currency and, when processing the transaction, convert it into the merchant's local currency at the prevailing exchange rate. This can be a huge draw for international customers who prefer to view products with localized price tags, rather than having to do the mental calculations themselves.

3. Fees

Payment gateways typically charge merchants one of three types: fixed monthly fees, per-transaction fees, or a combination of both. Transaction fees are often a percentage of the transaction amount (e.g. 2.9%) plus a fixed fee (e.g. ￡0.20). For gateways that enable international payments, transaction fees vary depending on the customer’s location. In addition to monthly costs and transaction fees, merchants should also consider the following potential costs when comparing payment gateways:

• Currency conversion fees
• Set-up fees
• Refund fees
• Chargeback fees
• Fees for withdrawals
• PCI compliance fees
• Account closure fees

Many payment gateways offer reduced fees as monthly transaction volume and/or monthly revenue increases. Merchants, especially larger businesses, can negotiate pricing with their payment gateway and develop a customized fee structure that works for both parties.

4. Recurring payments

For businesses that offer subscription-based goods and services, payment plans, scheduled charity contributions, or anything else that requires customers to pay on a recurring basis, it’s essential to choose a payment gateway that can facilitate recurring payments.

Indeed, customers are able to select their payment schedule (these options can be customized by the merchant), securely store their data, and automatically initiate the payments as planned.

5. Transaction limits

Most payment gateways have a transaction limit that sets a cap on the maximum amount a customer can pay in one individual transaction. These limits vary depending on the payment gateway and, for customized accounts, the nature of the merchant’s business.

Transaction limits are designed to protect customers from fraud and billing mistakes. However, it’s always worthwhile for merchants to review transaction limits to make sure they won’t hinder their sales process.

6. Hosting

For online merchants, there are three main types of payment gateways, which are differentiated depending on where and how the gateway is hosted.

• Hosted Hosted payment gateways redirect customers from the merchant’s website to a secure payment page on the gateway provider’s website. Customers enter their payment information on this page, which increases security for the merchant as sensitive data is not sent to their website. However, redirecting customers to a separate website can disrupt the sales process. If the customer is not familiar with the payment gateway, they may lose confidence in the process and abandon their shopping cart

• Self-hosted With self-hosted payment gateways, merchants host the gateway directly on their website. This allows for a more seamless payment process, but also places a greater responsibility on the merchant to ensure that the customer’s sensitive data is transferred securely.

• API-hosted A blend of the two previous gateway types, API-hosted payment gateways allow merchants to customize and embed payment forms into their own website using an application programming interface (API). Customers stay on the merchant’s website throughout the checkout process, while the payment gateway provider remains responsible for encrypting and securely transmitting the customer’s sensitive data. Merchants using API-hosted payment gateways are still required to be PCI DSS Compliant.

7. Integrations and compatibility

The appearance and usability of a payment gateway depends on how well it is integrated into the merchant’s e-commerce platform. Does it match the visual identity of the website? Is the user interface clear and easy to use? Does it work well on different devices? Before choosing a payment gateway, merchants should look for features that will ensure seamless integration. These include:

• Customizability: The payment gateway allows merchants to customize the user interface with their own colors, branding and fonts.
• Responsive design: The payment gateway works on different devices, browsers and operating systems
• Localization: The payment gateway automatically adapts its language and currency to the customer’s location.

8. Security

When choosing a payment gateway, merchants should ensure that their customers’ sensitive data is securely protected by paying attention to the following features:

• PCI DSS Compliance: The Payment Card Industry Data Security Standard (PCI DSS) is a set of security standards designed to protect sensitive cardholder data. Merchants should not only comply with PCI DSS requirements on their own websites, but also ensure that their payment gateway is also compliant.

• Encryption: It is important that a payment gateway encrypts the customer’s sensitive data during transmission — via SSL (Secure Sockets Layer) or TLS (Transport Layer Security) — so that it cannot be intercepted by hackers.

• Tokenization: Tokenization replaces sensitive payment data with unique tokens that have no value to potential fraudsters. This provides an additional layer of security because even if the tokens are intercepted, they cannot be used to extract the original data.

• Two-factor authentication (2FA): Implementing 2FA helps prevent unauthorized access to customer accounts. It serves as an additional layer of identity verification for payment gateways. It requires customers to provide additional identification data, such as a code sent to their mobile device or email account.

• Fraud prevention measures: Features such as address verification and IP geolocation are additional security measures that payment gateways can integrate to further prevent fraud.

9. Customer support

It’s never been easier to accept customer payments quickly and securely, but that doesn’t mean it’s always smooth sailing. When issues and concerns arise, it's important to have a gateway provider that’s easy to reach and available for troubleshooting.

Therefore, merchants should look for a payment gateway provider that has multiple channels for customer support, such as email, phone, live chat, FAQs and user guides.

Conclusion

A payment gateway is essential for small and large e-commerce businesses that want to accept secure and convenient online payments for their goods or services. Now you know all the important information about payment gateways. Finding a reliable payment processing partner is a real challenge as there are so many companies on the market.

BKPlus Software’s payment gateway solution offers best-in-class security features, customizable integration options and user-friendly operation tailored to the specific needs of businesses and customers. Contact us to learn how we enhance the customer experience through seamless payment gateway integration.