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When you start an ecommerce business, you should think carefully about how to accept payments online to meet user needs and manage the cash flow of your business viably. Know your payment methods, it will also determine the facilities your business will need.

Typical payment methods utilized in a modern business include cash, credit or debit cards, money orders, checks, online payment gateways such as PayPal and bank transfers.

Unless you’re running a shady side business that only accepts suitcases full of cash, you’ll need a reliable method of accepting online payments on your website. It means you should choose a payment processor and payment gateway.

How Online Payment Systems Work

It is often hard to understand how the payment process works and what the difference is between a payment processor and a payment gateway. Let’s find out.

Following four parties are involved with every credit card transaction:

  • The customer
  • The merchant
  • The acquiring bank
  • The issuing bank

Every transaction aims to transmit money from the issuing bank to the acquiring bank according to the agreement between the customer and the merchant. The payment processor and payment gateway connect all four parts of the payment chain.

Know your Payment Gateway - How Online Payment Systems Work

The payment processor executes the transaction by transmitting data between you, the issuing bank, the merchant, and the acquiring bank. It also typically furnishes you with the credit card machines and other equipment you use to accept credit card payments.

A payment gateway securely authorizes payments for online stores. This is important because it is restricted, because of security reasons, to transmit transaction data directly from your site to a payment processor.

Types of Payment Gateway

This is the main question you must answer before you choose the most appropriate Payment Gateway for your business. Payment Gateways are primarily of two types:

  • Hosted (external) payment gateway
    • Although integrated with your website, it redirects the users to the payment gateway provider website or uses iframe elements on your page for the payment details input.
    • One of its main benefits is that you don’t need to think about the safety of the transaction yourself – the gateway provider is fully responsible for the security and compliance of their platform. Hosted payment gateway solutions are additionally very simple to set up and require no customization.
  • Integrated (direct or shared) payment gateway
    • With this sort of online payment platform, the customer doesn’t need to leave your site. All interactions are handled right there, on your site. The data provided by the customer is sent to the payment gateway for processing via its API.
    • As a result, this approach offers a superior UX just as various customization options. You can tailor the checkout process to fit your business needs and branding strategy to ensure a smooth and pleasant experience. It is perfect for use on mobile websites.

How to Choose The Best Payment Gateway

Once you know what the available options are, a high-level online payment system comparison should be conducted to find a perfect solution.

Here are the key aspects to consider when choosing a payment gateway for your ecommerce business:

The Audience

Your choice should also take into account the demographics and geography of your clients. This will enable you to understand which payment types they would need.

For instance, millennials will most certainly pick payments via PayPal while older audiences prefer traditional methods, i.e. credit/debit cards. Some groups may even appreciate the chance to pay with cryptocurrency.

So, it’s best to run a survey or conduct an in-depth competitor analysis to find the right solution for your business.

Business specifics

First of all, you need to make sure the chosen solution works across all of your target locations (as well as in your country) and has no limitations as for the type of payments, currencies, accepted cards, etc.

You should likewise keep your product in mind when picking a payment gateway. For instance, some of them have certain limitations concerning the type of services/goods you can sell.

Security

Lack of trust and concerns about the safety of transactions is one of the main drivers of cart abandonment. That is the reason for choosing a secure payment gateway is so significant for your online store.

As mentioned above, if you choose the hosted solution, you can avoid a security headache. However, despite everything you have to ensure your vendor is reliable and pays attention to customer data safety.

It is additionally critical to check your payment provider for GDPR compliance if you are planning to sell your products globally. If it fails to comply with the regulation, you also may be influenced by the penalties.

Cost

The financial aspect of your choice is nearly as important as the technical. So, explore every single available avenue before making your conclusion.

Ensure there are no hidden fees or plan limitations that may force you to overspend. Most online payment gateways have commission/transaction fees. In addition, some might likewise have monthly or annual subscription fees and a set-up cost.

Performance and Reliability

As mentioned above, your checkout user experience can directly impact on your sales. That’s why processing speed is something you should be looking into when considering payment gateway options.

Your chosen payment gateway should offer minimal downtime.

Another significant aspect is the success/decline rate. Additionally, there are many reasons why a transaction can be declined – e.g. invalid or incorrect credit card information, insufficient money in the account, suspicious activity, etc. – so the more information your payment gateway vendor can give on the situation, the better.

Make a choice you won’t regret

Choosing a payment gateway provider is a significant step for every ecommerce business. However, considering the vast amount of available alternatives, finding an ideal solution for your business can be a rather time-consuming and tiresome process.

Plus, the chosen system needs to work smoothly with your website or mobile app. That is why looking for professional assistance in this matter seems like an intelligent move.

Create online store choosing from the wide range of payment options with Builderfly. Our experts are 24/7 available to help you in setting up your desired payment gateway.