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Payment Gateways Ultimate Guide: Everything You Need to Know
Payment gateways open the door to digital payments. Here’s how they work.
What is a Payment Gateway?
A payment gateway allows businesses to accept electronic payments. They work in conjunction with merchant accounts and assist you in accepting a variety of payment methods, including credit cards, debit cards, and mobile payments.
A payment gateway is not the same as a payment processor, which forms a separate part of the transaction process and ensures the actual movement of money from your customer’s bank account to your merchant account. Payment gateways collect the information the customer needs, while payment processors use the information to make the transaction happen.
Payment gateways are essential for businesses that want to take payments online. They form a crucial part of the process, so knowing what they are and how they work is important for your business. This guide will explain exactly how they work, how much they cost, and how your business could benefit from having one.
Want to know more about how card payments work?
While this article focuses on the payment gateways, we also have in-depth guides that fully explain all you need to know about taking payments. Explore below:
How Payment Gateways Work
As is explained above, a payment gateway is key to ensuring a transaction can go ahead. They are part of the taking payments process which involves card machines, payment processors, and merchant accounts.
They are essentially the front-facing technology responsible for acquiring and sending customer information to the acquiring bank (the bank that provides you with your merchant account), which is when the transaction is sent to your merchant account to be processed. How they work depends on the nature of the payment itself, and whether it happens online or in a shop.
With online payments, the payment gateway will use a computer program to allow communication to happen between your website and the customer’s bank. This happens after the details on the card have been checked. In-person payment gateways work similarly, but instead, it’s the EPOS system that connects your business with the customer’s bank.
Payment Gateway Fees
Payment gateways have varying fees; some have lower transaction fees but higher monthly fees, while some have no monthly fees but high transaction fees.
The pricing structure that works best for your business will depend on how many card payments you take, as fewer payments mean you can afford to opt for a higher rate with no monthly fees. This would obviously not be the case if your business takes a lot of card transactions.
How Are Payment Gateway Fees Broken Down?
When selecting a payment gateway for your business, it’s crucial to be aware of the various fees associated with their services. These fees can significantly impact your overall operating costs. Common kinds of fees include:
Setup Fees
Charged upon initial account creation to cover configuration and integration with your sales system.
Transaction Fees
Typically a fixed amount or percentage of the sale amount is charged for each transaction processed.
Monthly Fees
A fixed monthly charge for access to the payment gateway’s services, regardless of transaction volume.
Chargeback Fees
Charged when a customer disputes a charge.
By understanding these fees and their implications, you can make an informed decision when selecting a payment gateway, so the one you end up with aligns with your business’s needs and budget.
Want to know more about payment gateway fees?
If you want to know more about payment gateway fees, we’ve written a guide that breaks down all of the fees associated with taking payments both online and in person.
Check it out to find out all you need to know.
Types of Payment Gateway
Various payment gateway providers will enable your business to accept digital payments, with many of them offering different methods of doing so. The best payment gateway for your business will most likely be one of the three main types of payment gateway, which are:
- Hosted
- Self Hosted
- API-Hosted
Hosted
A hosted payment gateway is one of the most simple ways to accept payment. All your website would have to do is have a payment link on the payment page which, when clicked, would take your customer to a separate payment page. Providers of hosted payment gateways include companies like PayPal and Amazon Pay, which have pages that customers are directed to from a separate website.
A hosted payment gateway has the advantage of being simple and relatively hassle-free, taking a lot of the stress away from your business. It does, however, mean your customers are taken away from your website when making payments, limiting your control.
Self-Hosted
A self-hosted gateway does largely what it says on the tin. Rather than being directed to a separate webpage, customers will see a payment page displayed within your business’s website, where they will enter payment details. Their card details are then sent to a third-party payment gateway to be authorised.
This makes for a better customer experience as customers won’t be thrown onto a different website to make payment. You still lack full control, however, as you are unable to control the payment page itself.
API-Hosted
API Hosted Gateways enable the entire payment process to occur on your website. Your website will host the payment and your servers will handle the data. This is more suited to bigger businesses that have large volumes of sales day-to-day.
One thing to remember is you’ll need to pay extra for SSL certification, and also ensure that the payment process is PCI DSS compliant if you want to use this kind of payment gateway.
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Payment Gateway Integration
The steps required to make a simple transaction can, and often do, seem complex. If you’re new to taking card payments you may have never even heard of some of the things explained in this article, but there’s no need to worry.
Many companies offer fully integrated payment solutions to businesses just like yours, whereby the payment gateway, payment processor, and merchant account are all handled by the same company. Companies like this are often the best option for businesses that are either small or just don’t want the hassle of having a separate provider for each of the steps.
Which is the Best Payment Gateway for Your Business?
The best way to take electronic payments depends on the specific needs of your business. If you’re a small business that has limited knowledge or resources at your disposal, then using a hosted gateway could be the best option for you.
Something else to consider is the nature of your business. Is it fully online or do you have any physical shops? If you do have a physical shop, you’ll need a card machine to accept electronic payments; which means choosing not just a payment gateway, but also a card machine.
To help you compare all of these things side by side, we’ve created a list of what we consider the best payments gateways available in the UK.
FAQs
What is a payment gateway?
A payment gateway allows businesses to accept, process, and manage customer payments. They are mainly used for online purchases but are also widely used for in-person transactions.
How do I choose a payment gateway?
There are several things to consider when you choose a payment gateway including transaction fees, supported payment methods, and security features.
One of the most important things for your business could be the ease of integration a payment gateway has. A fully integrated payment gateway could be your best option if you want to have a hassle-free way of accepting payments, as there are fewer things for you to worry about.
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