The 3 types of payment gateway and how to pick the best option for your business
We are rapidly moving towards a cashless world. Finding the right payment gateway ensures any move towards becoming cashless, is a safe one. In this blog, we break down the 3 kinds of payment gateway, to help you select the best option for your business.
Over 80% of US purchases were accompanied by methods other than cash in 2019. By 2025, online payment transactions are predicted to grow by a further 15%.
You need to make sure your online payments are as safe (if not safer) than physical ones. That’s where payment gateways come in. They encrypt the customer's card information and send it to the acquiring bank, which then goes on to process the payment. You can view it as the electronic equivalent of a cash register.
But, it must be practical and safe. So, you need to understand how payment gateways operate and how to select the best one for your specific needs.
We’ll walk you through:
- Payment gateways: A quick overview.
- How do payment gateways work?
- Overview of cross-border payments.
- Cross-border payments: key considerations.
- The 3 types of payment gateways.
Payment gateways: A quick overview.
A payment gateway is a technology that facilitates businesses in online payment transactions and cross border payments. The service is used by businesses to process and handle credit and debit payments. These gateways enable a simple online checkout experience by connecting businesses with a payment processor.
It’s vital for any business to choose the right payment gateway. This will directly impact your customer experience, sales and overall business performance.
How do payment gateways work?
The payment gateway forwards encrypted data to the payment processor or acquiring bank, which validates the transaction with the customer's bank. The payment gateway will notify the customer of the payment status, normally through a confirmation page or email. The transaction is complete once the money has been successfully transferred. Now, you can move on to fulfilling orders or providing services.
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Overview of cross-border payments.
Now, if you plan to expand your business to global markets, an effective and secure cross-border payment gateway is essential. Your customer satisfaction, conversion rates, and compliance can all be significantly impacted by your choice of payment gateway for international transactions.
What are cross-border payments?
The cross-border payment definition states that it involves financial transactions that span over international boundaries. These transactions occur when companies or individuals pay or receive money from clients or partners abroad. Cross-border payments have grown to be a crucial component of global trade and eCommerce in the digital age, allowing companies to interact with clients worldwide.
The potential market size of cross-border payments.
Over the years, the market for cross-border payments has grown exponentially. Due to the rise of eCommerce and globalisation, companies of all sizes are attempting to reach outside their own country's borders. Recent statistics show that cross-border B2C e-commerce transactions reached around $156 billion in 2022.
Businesses that accept cross-border trade can reach new markets, increase their customer base, and diversify their sources of income. You can improve customer satisfaction and encourage steadfast loyalty by providing easy payment choices to overseas clients.
Cross-border payments: key considerations.
It’s sensible to take a step back and go over some of these important factors when comparing various payment gateway options.
- Currency. Ensure seamless multi-currency processing so that you can take payments in several currencies without delays.
- Flexible payment options. Pick a gateway that accepts various payment methods, including credit cards, e-wallets, and bank transfers. This will satisfy different consumer preferences.
- Security. Give top consideration to gateways that provide strong security measures and abide by global payment standards and legislation.
- Cost comparison. To pick a gateway with reasonable and transparent pricing, compare costs for various payment types and currencies.
- Dependable customer service. Search for a payment gateway that offers prompt, dependable customer service via various channels.
- Scalability. Choose a gateway with the potential to grow with your company, that gives flexibility regarding integrations and functionality.
Now that you know the key factors, you can consider the most promising options available out there.
The 3 types of payment gateway.
You have several payment gateway options, whether you want to use it for cross-border payments or setting up online payments. The question is, what are the different gateway types, and how will you make sure you pick the right one?
Here are 3 different payment gateway types, each with advantages and disadvantages. This will help you decide which is best for your company:
1. Hosted payment gateway: Redirected payments.
Your customers are directed away from your site's checkout page by a hosted payment gateway. The client is sent to the Payment Service Provider (PSP) when they click the gateway link. Here, the user enters their payment information. After making a purchase, they are directed back to your website to finish the checkout process.
- This gateway provides a high level of security. This is due to the transaction process being compliant with PCI.
- The PSP provides clients with a checkout that can accept various payment methods.
- It’s very simple to use and can be easily set up.
- It provides an attractive user interface.
- You can’t oversee the whole customer checkout process because this gateway directs customers offsite which can disrupt the purchasing process. It also increases the possibility of cart abandonment, if customers aren't expecting to be redirected to another site.
2. Self-hosted payment gateway: On-site payments.
In this gateway type, the user provides the payment information on your website. When information is requested, the gathered data is forwarded to the payment gateway's URL. Some gateways require a hash or secret key, while others need a specific format for the payment data.
- The biggest benefit for the customer is that they can complete the entire purchase on your website. This enhances the user experience and lowers the risk of cart abandonment.
- You can customise all of the checkout fields, incorporating your own branding styles to enhance the user's experience.
- You can keep track of the whole transaction process.
- It provides you with more control while dealing with cross-border payments.
- Payment information is stored on your server. PCI DSS compliance is required from your end due to this.
3. Non-hosted payment gateway: On-site checkout, off-site payment.
You can use API-based payment gateways if you want complete control over your website design. Customers input their credit or debit card details directly on your checkout page with API-hosted payment gateways. Payments are handled using API or HTTPS queries.
- API payment gateways give you more control over the payment process and client experience. You can modify the payment page as you like and link it to your website.
- You can easily track client information with this kind of gateway. Customising the consumer experience when using non-hosted payment gateways is also simpler. You can connect every purchase with the client's account and track their purchasing patterns.
- You are in charge. Unlike hosted payment gateways, you control all of the payment data and make sure it is transferred securely. In short, you are also partly responsible for security.
- You can also add extra security precautions. This could include tokenisation or SSL Encryption.
- Your business must closely adhere to PCI DSS compliance.
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So, now you understand the pros and cons of the 3 types of payment gateways, all that’s left is to choose the right one for you. Begin by considering your level of comfort and the amount of control you want over your customer data. Then look into all the pricing policies and the particular features the different gateways offer.
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