Introduction - The best payment gateway solutions
The number of different services available to e-commerce vendors has exploded in just the last couple of years, breaking through many of the barriers that used to exist. At the same time, although great financial products are available for merchants, it can be confusing to navigate them all and find what works best for you. Let’s take a look at what you should be looking for in a payment gateway.
Firstly, you might be asking exactly what a payment gateway is. It’s simply a service provided by a payment solutions provider, that handles credit card transactions on your e-commerce website. It stands in-between the customer providing credit card details, and the credit card issuing body (e.g. Visa or MasterCard). This diagram illustrates the process of making an order on an e-commerce site in simplified form:
The customer goes to the site, makes a purchase and at the point of payment, the payment gateway steps in – apart from anything else, this is important because it means that there is a layer of security for the customer, so that his financial details are not stored on the site. The payment gateway communicates securely with the card issuer, or card association. They in turn make the authorization and in due course the merchant’s account is credited with the funds.
Types of Payment Gateway solutions
There are two basic types of payment gateways:
- Merchant bank account type. The older type which is connected to the seller’s merchant bank account. This is a special type of bank account which must be associated with the merchant’s registered business. The payment gateway interacts with the bank via only the credit card association (Visa, Mastercard, etc.)
- Payment provider type. The newer type which has become common over the last few years, where the seller does not need to have a merchant bank account – the income is simply routed to the seller’s account with the specialist payment processor. Confusingly, this is sometimes called a “merchant account”, but it’s not a merchant bank account, or a bank account at all. The funds are held in this account with the payment solution provider, until sent to the seller’s personal bank account of choice.
Pros and Cons of the Merchant Bank Account Type
This older type is used by many larger and more traditional firms online. As mentioned, they require a merchant bank account, which may not be provided by every bank, and that account must be legally held by your business. In other words, you can’t simply use your personal bank account. This can be a hurdle for e-commerce sellers who are just starting out and aren’t ready to go to the expense and sometimes lengthy process of setting up a business entity.
In addition, this type of payment gateway is likely to require some technical expertise to set up and integrate with your site via API. They are not generally designed as a product to be simply installed on an e-commerce site by a plugin.
The main advantage of this type of payment gateway is that, being designed for larger and higher volume businesses, fees and charges can be lower – if your business is already selling at volume. However, this is something that will need to be checked carefully, as the gap in fees between the two types of gateway may no longer be very large at all due to the heavy competition in the financial services marketplace.
Pros and Cons of the Payment Provider Type
These payment gateways are much easier to set up and integrate with your account. Many have “out of the box” solutions which can quickly and easily be installed on the e-commerce site. Integrations are constantly being made and updated for the most popular e-commerce platforms. It is necessary, of course, to first establish an account with the payment solution provider, but this is a simpler process than establishing a merchant bank account with a bank. Once you have the account and the gateway is up on the site, it’s all ready to receive funds from your customers.
Another advantage of this type is flexibility in receiving payments, with gateways from firms such as MoneyNetInt able to receive deposits from local wire payments, SEPA direct debit, Credit Cards and more.
On-site and Off-site Gateways
Another consideration is whether your customer will be directed off-site, to the payment gateway site, to complete the purchase, or whether they will stay on-site during the whole process, with the payment gateway completely invisible to them. Many solution providers have both options. It can be better for conversions to stay on-site in many cases, but this is something you will need to research according to the preferences of customers in your niche and geographic location. It’s worth testing and some providers may allow the capability for both, so you can test which results in a better conversion rate.
Model Your Pricing
When considering different providers, you will need to model out your expected scenarios, based on number of sales, average value of sales, returns and chargebacks, conversions, etc. You might find that especially for entry level and smaller businesses, the payment provider type is very competitive, and in fact this type is becoming increasingly competitive for high volume merchants as well, and is used by many successful and large stores.
Model Your Checkout Process
Another factor to consider is the customer experience of the checkout process. Conversion rate can be lower if there is a clunky process with too many steps, if there are redirects to unknown sites, and so on. Make sure you have a clear idea of the experience your gateway will provide. This can be regional as well- in some countries customers are used to a certain experience, while others may be unfamiliar to them and result in a poorer conversion rate.
Plan for Growth
Don’t forget that your business will grow and you should expect to handle higher volume as time goes on. A good payment gateway solution will offer features and rates which will support you as you become a bigger player.
A payment gateway does not exist by itself but is part of an overall solution for your e-commerce business. Bundled solutions from specialist firms such as MoneyNetInt are available which will streamline your entire store set-up process and be with you on your journey to growth. We encourage you to look at the modern and innovative solutions available in the fast-changing and fast-growing e-commerce ecosystem and put in place the payment gateway that will maximise your opportunities.
If you found this useful, check this out ==>