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Why You Need an ecommerce payment gateway

Monday, November 17, 2014

The terrain of business transactions has shifted from traditional payment methods (for example, paper checks or wire transfers) towards quick and immediate electronic payments that can be completed online. In this shift, companies and sellers have embraced the opportunity for integrating payment gateway systems into the transaction process.

Ecommerce payment gateway systems enable businesses to offer electronic payments from customers that are secure and convenient. Of course, selecting the right payment gateway for your business is crucial and requires attention to what service is providing and how the payment process works. This article will discuss how ecommerce payment gateways work, the types of payment gateways available, and how this tool can boost your overall business productivity and customer reach.

Ecommerce payment gateway: what it is and why you need it

With 21st-century payment solutions, your dream of happier customers, a productive workforce, and healthy revenue numbers have never been this close. A payment gateway is a merchant service that processes credit card payments on behalf of e-commerce companies and traditional brick and mortar stores. If you run an e-commerce store, you can use payment gateways to authorize and process credit card and debit payments for your online businesses or brick-and-mortar stores.

How does a payment gateway work?

In terms of payment platforms, your online customers have never been spoilt for choice. They can pay through credit cards, debit cards, and mobile payment options. Equally, they can easily change their minds halfway through and use cryptocurrency.

That said, any business that wants a piece of the e-commerce pie has to embrace a system that helps it navigate the murky waters of the global financial system.

  • Your typical payment gateway service works this way:
  • Your customer pays through their phone or website
  • Their payment details are sent securely through a popular payment gateway platform
  • You receive your funds (minus the processing fees)
  • The customer gets notification of successful payment
  • Merchant account processes payment details

That's just an overview; payment platforms are sophisticated systems that go into PCI compliance, currency conversion, and fraud detection. However, this doesn't stop customers from demanding shorter processing times, intuitive interfaces, and smooth user experiences.

25% of all Point of Sale (POS) payments were made with mobile wallets: what this means for ecommerce

Do you think that the rise of e-commerce stores and real-time one-click online payment options is an isolated case, a fad that will come to pass?

If so, many pundits may respectfully disagree. They argue that payment gateway services are the future of payment processing. And they have the numbers to show it.

Some of the statistics showcasing the growing role of online payment in your field and many others include:

  • By the year 2040, it is estimated that 95% of all purchases will be through e-commerce
  • Globally 57% of shoppers buy from retailers that are overseas
  • 93.5% of global internet users have purchased products online
  • Globally, credit cards are the preferred form of payment, followed by digital banking and debit cards
  • Digital wallet usage in e-commerce increased 23.7% year over year

How does a payment gateway boost your business?

If your payment solution is working well and has never failed you, you may be wondering why something that's not broken should be fixed. With the rise of e-wallets, cryptocurrency, and digital payment platforms, embracing or updating your online payment methods, your online store or ecommerce website is not only advisable, it’s also beneficial. Below are ways that a payment gateway can boost your overall business operations.

  • Greater efficiency. The desire for efficiency is something that both you and your customers share. Your customers paying online without leaving your app or website leads to efficient purchases. Moreover, using payment gateways is paperless and limits the peer to peer communication between you, your customers, and your financial providers.
  • Better customer experience. Customer experience is the next frontier in competitive advantage. That said, your customers now value convenience as much as they do their money. A seamless and efficient one-click online payment leaves your customers satisfied. The average shopping cart abandonment rate is 85.65%, and poor checkout experiences are to be blamed. Above this, the knowledge that they can access chargebacks and return goods and services regardless of their credit or debit card also endears them to your service.
  • Higher conversion rates. According to Shopify, 18% of customers abandon shopping carts because of a long and complicated checkout process. That 18% is a lot and a group you probably don't want to find most of your customers in. With that in mind, an efficient gateway payment system helps reduce the length and abstract the complexities of a checkout process.

What are the types of payment gateways?

Due to the complexities of payment processing, a single approach isn't enough. Depending on your business needs, you can choose from different types and service providers, one that works for you.

1. Self-hosted payment gateways

In a self-hosted payment gateway, your ecommerce platform is responsible for processing the payment information. Your website (the merchant website) collects the customer data and sends it to the payment gateways URL.

Unlike hosted payment gateways, you have more freedom over your user interface and are no longer under the whims of payment gateway providers.

Some of the benefits of such an approach to payment gateways include:

  • Limitless customization. With a self-hosted payment gateway, your hands are not tied as far as the user interface is concerned. With this freedom, you can create a custom user interface that works for a memorable customer experience.
  • Control over your customer’s journey. Once you opt for a self-hosted payment gateway, you're now behind the wheel of your customer's journey. Adding discounts, proposals, and other forms of customization into your customer journey becomes more manageable. However, with this freedom to run your payment gateway comes great responsibility. You are now responsible for your customer's data security and your SSL certification, fraud protection, and PCI compliance.
2. Hosted payment gateways

You're probably asking yourself, why build a gateway system when you can rent one instead?

In a hosted payment gateway, your website redirects your customers from your check-out page to the gateway provider's page. Your customer then fills in their required details, after which the payment provider redirects them back to your page.

By now, you probably have a good idea of the benefits of such an approach:

  • Security. If you settle for a PCI-supported and authorized gateway provider, you have a greater assurance of some sense of security. Most companies that specialize in PCI have the capability and experience to build advanced encryption and fraud protection systems that most companies may struggle to make in-house.
  • Simplicity. Most hosted gateways providers are simple to operate. Moreover, for popular gateway providers, there might be a chance that your customers have used it elsewhere and are familiar with it.
3. Local bank integration/direct payment gateway

In a local bank integration, your e-commerce website directs your customer to the gateways payment website (your local bank in this case). Your customer then enters their details into the bank's website, where they are processed. After authenticating the details, your customer is then redirected back to your page.

One advantage of this approach to online payments is its simplicity. This detail makes local bank integration a favorite for small businesses. However, the strength of local bank integration also doubles as its greatest weakness.

4. API/non-hosted gateway

In an Application Programming Interface (API), your customers enter their credit and debit card information directly on your checkout page (the merchant) and the card processing occurs through an API.

Alternatively, the information processing can occur through HTTP queries. The advantages of this API approach include:

  • The ability to customize user interfaces. As you've seen, in an API or non-hosted gateway, the payment processing happens in the site or merchant's account. This perk gives you control over your user interface, which you can customize.
  • Integration with several other devices. API technology in this type of payment gateway opens your business up to a whole new world of integration. Your card processing systems can integrate with mobile phones, tablets, and smart home devices with an API gateway.

Costs of a payment gateway

Another crucial aspect of payment gateways you should consider is the pricing. This doesn't necessarily mean going for the cheapest option out there, but one with a delicate balance of price and quality.

Some of the fees you're likely to encounter in your search for a payment gateway include:

  • Monthly fee. Most payment gateways charge you a monthly subscription for using their services.
  • Transaction fee. Some gateway payment processors charge you a percentage of every transaction you make with your clients on your ecommerce business.
  • Processing fee. Other payment gateways, like the local bank, will charge you a processing fee every time you process your payments.

How to choose the best payment gateway

It won't take long to search to discover how saturated the payment gateway market is. A simple Google search will reveal thousands of service providers, startups and established firms, each promising to take your business to financial heaven for less than a dime.

As long as you remember to put your customer in the middle, choosing a payment gateway doesn't have to be complicated.

  • Know how your customers pay you. Before settling on a payment gateway solution, it's crucial to have your customer's payment preference at the back of your mind. Do they pay you using Visa or Mastercard, or mobile payment services? If you're selling apps, your payment would probably be Google Pay.
  • Know what features you need for your business. Each enterprise has different business needs. On that premise, you'll never go wrong with outlining the different features you require in a payment processor. For you, it might be one with compiled transactions, batch reports, specific payment options. Another business owner may need one with real-time metrics and analytics.
  • Know the fees. Before you settle on a payment gateway, consider your budget. Remember not to focus on upfront costs only, but upgrade costs and setup fees that may come up later.
  • Know your integration needs. Your payment processing system doesn't exist in isolation. It probably works in tandem with other systems’ critical infrastructure to keep your business running. That said, it's essential to have your compatibility, not only in software but also in terms of payment services. Some payment services may not support American Express or other major credit cards, which you may discover a little too late.
  • Know the support options. Customer support is essential in online money transfers. A slight outage or downtime in your payment processing service may mean irreparable damage. That's why it's necessary to choose a service provider with robust customer support to help discover and fix issues as they arise.
  • Know your scale capacity. Many things are uncertain, but one thing we're all sure of is that your enterprise won't be in the same situation ten years from now. As you're buying an online payment gateway for today's needs, don't kick tomorrow's needs to the curb.

Your journey with payment gateways doesn't have to end here

Heartland is the point of sale, payments, and payroll solution of choice for entrepreneurs that need people-powered technology to sell more, keep customers coming back and spend less time back in the office. Nearly 1,000,000 entrepreneurs trust heartland to guide them through market changes and technology challenges, so that they can stay competitive and focus on building remarkable businesses instead of surviving the daily grind. Learn more at heartland.us