If you have an online store or are in process of developing one, you probably know that you’re going to need some sort of payment gateway. For most (if not, all) ecommerce sites, having the right kind of payment gateway is crucial to achieving success online.
A payment gateway is a piece of software that securely accepts payments from customers to an online store. In essence, it is a service for e-commerce businesses that allows merchants to accept credit cards and other forms of Internet transactions.
When deciding on which payment gateway to use, there are some factors to consider. I’ve laid out some of the major payment gateways below and how each of the considerations plays into them.
Hosted vs. Integrated
Payment gateways can either be independently hosted or integrated into your website via API. There are pros and cons to both.
If a gateway is hosted, it redirects your customers away from your website to the gateway’s own payment processing platform. If you’ve ever used PayPal, then you’ve used a hosted gateway. The biggest benefit to one of these is that the provider takes care of all PCI compliance and data security. The major downside of this is that being redirected to a third party provider could result in some customers dropping off, causing you to lose conversions.
On the flip side, an integrated payment gateway fits seamlessly into your ecommerce website via the gateway’s API. This means that customers never have to leave your site in order to enter payment information and complete a transaction. Typically, this is considered a better user experience since the customer is taken from shopping cart to purchase in the most direct way possible. However, the big downside is that you are responsible for all PCI compliance and securing customer data. Any non-compliance could put your customers at risk and make you subject to an audit.
The bottom line: a hosted gateway is easier to set up, but could result in lost conversions, while an integrated payment gateway offers better UX, although it might take some work to set up the API, and you are responsible for PCI Security Standards.
What ecommerce platforms is it supported on?
Chances are if you’re looking into a payment gateway you’ve already got an ecommerce platform or you have an idea of which one you want to go with. Make sure that the payment gateway you use is compatible with your ecommerce platform of choice. If necessary, you could choose to create your own integrations between a payment gateway and your ecommerce platform, but this amount of customization will take much more time and resources from your development team and can cause issues across different devices.
For the most efficient and cost effective solution, choose a payment gateway that is already supported on your ecommerce platform.
What are the fees?
Different payment gateways have different fee structures such as monthly fees, fixed fees per transaction, variable fees based on a percentage of transaction amounts, or extra fees for things like returns, international charges, etc. The most important thing to keep in mind is what fee structure makes the most sense for your business.
A 1% transaction fee doesn’t sound like a lot, but it can easily add up if you are selling luxury goods. Or perhaps you’re selling subscriptions, and you anticipate a lot of monthly usage. In that instance, you should look for a payment gateway that has low or no usage fees.
In general, if a payment gateway has low set up fees, there will be a higher monthly fee and vice versa. However, you’ll have to do some homework to parse out any other fees you may incur and what will offer you the best long-term savings.
Merchant accounts
Back in the day, all payment gateways required a merchant account. This is simply a special bank account that allows direct receipt of credit card payments. The funds would then be delivered into your company’s bank account and you would incur a small fee. Many gateways still require a merchant account, but more and more are offering direct payment into your bank account. Again, there are pros and cons to both.
Payment gateways that require a merchant account are usually integrated, so you can manage all aspects of the transaction directly on your ecommerce site. However, this means you’ll likely pay more in up-front development costs to set up the API. The upside is that the transaction fees of many payment gateways with a merchant account are lower than those of their non-merchant counterparts.
Payment gateways that don’t require a merchant account are nice with their easy setup and ability to send funds directly to your bank account. However, they tend to have higher transaction fees and are not integrated on your website.
Choosing Your Gateway
Below are some of the most common payment gateways, all of which we have either used ourselves or have integrated for a client. Using the factors discussed above, you can more easily compare which one is the best for you.
Braintree
Braintree launched in 2010, and has since been acquired by PayPal, now operating as a “PayPal Company.”
Supported Platforms: Bigcommerce, Magento, Spree Commerce, WooCommerce, Shopify
Processing Rates: 2.9%+ $0.30 transaction fee (after first $50,000), and a $15 chargeback fee. You can see pricing details here.
Terms: No contract; You can keep all of your customer data if you choose to leave
Stripe
We love Stripe because it was built for developers, not merchants. It’s a perfect fit for businesses looking to make money with more non-traditional means such as an app or subscription service.
Supported Platforms: Bigcommerce, Shopify, WooCommerce, Magento, Spree Commerce
Processing Rates: 2.9% + $0.30 fee (after first $1 million), and a $15 chargeback fee. You can see pricing details here.
Terms: No contract; Must adhere to the Privacy Policy
Authorize.Net
One of the oldest payment gateways, Authorize.Net has been around since 1996.
Supported Platforms: Bigcommerce, Shopify, Volusion, WordPress, Magento
Processing Rates: Authorize.Net charges a $49 setup fee, a $25 monthly gateway fee, and a $25 chargeback fee. The transaction fee is 2.9% + $0.30.
Terms: Month-to-month agreement with no early termination fees; If you go through a reseller, you may encounter a contract and termination fees.
PayPal
PayPal is considered the industry leader by some. Since 1998 PayPal has been in the payment gateway space, and has acquired companies like Braintree and Venmo.
Supported Platforms: ALL of ’em!
As a hosted gateway PayPal usually redirects to its own site, with no platform integration necessary. You do have the option to integrate with the PayPal Express API to skip the PayPal redirect.
Processing Rates: PayPal charges 2.9% + $0.30 per transaction (with option for volume discounts), and a 3.9% + fixed fee per international transaction. Additional add-ons may incur other fees. You can see pricing details here.
Terms: No contract and you may cancel at any time
Amazon Payments
Amazon Payments launched in 2007 and offers the seamless checkout experience of Amazon on other retailers’ websites.
Supported Platforms: Magento, Shopify, WooCommerce, Volusion
Processing Rates: Amazon charges 2.9% + $0.30 per transaction and a $20 chargeback fee. There are no setup fees, and no fraud protection fees. You can see pricing details here.
Terms: No contract and you may cancel at any time
For even more details on choosing a payment gateway, check out WooCommerce’s Payment Gateway Guide.
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