Co-founder and CEO of Choco Up , one of Asia's leading revenue-based financing and growth platforms.
The past decade has seen an e-commerce boom. With seismic shifts toward online shopping and the widespread adoption of digital payments, equipping oneself with online payment processing capabilities is no longer an option. It has become a necessity.
This article is a starter guide for readers who want to learn about online payment gateways. For those who need some help with choosing a payment gateway for your online business, I have some tips for you, too.
What An Online Payment Gateway Is
A payment gateway refers to the front-end technology that reads and transmits payment information from customers for processing. When used online, it's a cloud-based software, and you can think of it as the virtual equivalent of a card reader.
An online payment gateway is essential for any business with a digital storefront. Without one, you'll lack the mechanism to connect with customers in online transactions.
Types Of Online Payment Gateways
Online payment gateways can be grouped into three major categories: hosted, self-hosted and API-hosted.
1. Hosted Payment Gateway
A hosted payment gateway directs customers away from your website's checkout page to the payment service provider's (PSP) page. This is where customers enter their payment details. After that, they'll be redirected back to your site to complete the purchase.
2. Self-Hosted Payment Gateway
Using a self-hosted payment gateway means that customers' payment information will be collected on your site. The information is then sent, sometimes in a specific format, to the URL of a third-party payment gateway for authorization. This type of payment gateway gives you greater control over the purchase experience, enabling a faster checkout process at the same time. Yet, a drawback is that it doesn't come with a technical support team to solve issues for you.
3. API-Hosted Payment Gateway
With an API-hosted payment gateway, customers enter their payment details on your website's checkout page. Payments are then processed on your site using an API (application programming interface) or HTTPS queries. While an API-hosted payment gateway provides you with full customizability over the online payment experience, you'll also be responsible for security, such as SSL certification and PCI compliance .
How To Choose An Online Payment Gateway
Before you pick an online payment gateway for your business, there are some important considerations you must take into account. Below are seven of them.
Whether you choose a hosted, self-hosted or API-hosted payment gateway is a matter of preference. In the decision-making process, however, be sure to weigh in considerations like customers' checkout experience, security requirements and the availability of technical support.
When sizing up your options for a business solution, it's natural that you consider its cost. With online payment gateways, things could get tricky. Many payment gateway providers have tiered pricing structures, charging different fees based on the transaction volume of your business. Hence, before settling on a particular payment gateway provider, it'd be wise to think through how you'll grow and scale your business in the future.
An online payment gateway handles payment data—some of the most private and sensitive information of your customers. Choosing a secure payment gateway, therefore, is a key imperative to help keep data safe and avoid reputational damage to your business. For starters, compliance with PCI standards is essential for any business that accepts credit card payments. You should also be looking for a payment gateway that uses encryption or tokenization to protect customers' data. Real-time fraud detection is a desirable feature, too.
4. Customer Needs
A lack of variety in payment methods could be a conversion killer, as evident from research findings that 42% of consumers would quit the checkout process when their desired payment option wasn't available. In view of this, it's crucial that your payment gateway supports the payment methods commonly used by customers in your niche.
5. Customer Support
Contacting customer service representatives could be a frustratingly difficult process, and you wouldn't want that when payment processing—and your company's revenue—hangs in the balance. My advice? Look for payment gateway providers with quality customer support.
If you're a digital merchant, you might consider using a payment gateway that easily integrates with the e-commerce platform you're using. Integration with other business tools, such as accounting software, is also a plus.
7. International Capabilities
Many e-commerce businesses start local and go global to pursue further growth. If cross-border expansion is on your business road map, you'd better be prepared for multi-currency payments and look for an online payment gateway with that capability.
Some Last Words
There are numerous online payment gateways provided by different companies, but finding the ideal solution isn't an easy task. If you're new to the world of online payment processing, remember the seven considerations discussed in this article—they should be enough to get you started.
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