How to choose a payment gateway: What to know and what to consider

Last updated July 20, 2023
  1. Introduction
  2. What is a payment gateway?
  3. How do payment gateways work with businesses?
  4. Benefits of using a payment gateway
  5. How to choose a payment gateway

Ecommerce is predicted to comprise nearly 25% of global retail sales by 2026. As more customers shift to online shopping, businesses increasingly need to provide easy, secure online transactions.

Payment gateways play an important role in this process. Payment gateways can affect the customer experience and your ability to accept payments in all of your target markets.

This article will explain what payment gateways are, describe how they work, and guide you through the important factors to consider, helping you select the right payment gateway for your business.

What’s in this article?

  • What is a payment gateway?
  • How do payment gateways work with businesses?
  • Benefits of using a payment gateway
  • How to choose a payment gateway

What is a payment gateway?

A payment gateway is the digital equivalent of a physical point-of-sale (POS) terminal. When customers shop online, instead of physically swiping, inserting, or tapping their card on a machine, they enter their card details on a website or app. The payment gateway is the service that validates these details, processes the payment, and confirms the transaction to both the customer and business.

Payment gateways allow businesses to accept electronic payments securely. They facilitate the transfer of information between a payment portal—such as a website or mobile app—and the frontend processor or acquiring bank.

Payment gateways accept various forms of digital payments, including debit and credit cards, electronic checks, and digital wallets. Their primary role is to ensure the secure transmission of sensitive information, such as credit card numbers, from the customer to the business and from the business to the payment processor.

How do payment gateways work with businesses?

Payment gateways are necessary for businesses that conduct sales online or accept electronic payment methods. Here’s an overview of how they work with businesses to facilitate secure, easy payment acceptance using a variety of widely used payment methods:

  • Transaction authorization
    When a customer makes a purchase and enters their credit or debit card information, the payment gateway then processes this information. It communicates with the customer’s bank to check for sufficient funds and authorize the transaction.

  • Securing data
    Payment gateways use encryption and tokenization to ensure that sensitive data, such as credit card numbers, are secure during transit. This protects both the business and the customer from potential fraud.

  • Order fulfillment
    Once a transaction is authorized, the payment gateway sends a message to the business to proceed with the order fulfillment. This can include anything from shipping a product to providing a digital service or product.

  • Settlement of funds
    After the transaction is complete, the payment gateway facilitates the transfer of funds from the customer’s bank to the business’s bank account. This involves several steps, including the collection and deposit of funds, reconciliation, and reporting.

  • Fraud prevention
    Payment gateways also play an important role in fraud prevention. They use various tools and technologies, such as IP tracking and geolocation, to identify and prevent suspicious activities.

  • Integration with other business systems
    Most payment gateways can be integrated with other business systems—accounting software, customer relationship management (CRM) systems, and ecommerce platforms, to name a few. This enables businesses to improve operational efficiency.

Benefits of using a payment gateway

The right payment gateway can positively impact many parts of the business. Beyond facilitating transactions, payment gateways can also significantly improve the customer experience and refine financial processes. Here are some of the potential benefits of using a payment gateway:

  • Enhanced customer experience
    Ecommerce customers typically want an intuitive, simple, and fast checkout experience that allows them to use their preferred payment method. Payment gateways enable convenient and fast transactions, allowing customers to make payments using a variety of methods—including credit and debit cards, digital wallets, and more.

  • Secure transactions
    One of the primary advantages of a payment gateway is the security it provides. It uses advanced encryption technology to protect sensitive data, safeguarding both the business and the customer against fraud and data breaches.

  • Increased sales
    By facilitating online payments, payment gateways can help businesses reach a wider audience, including customers from different geographical locations, which can increase sales.

  • Real-time transaction processing
    Payment gateways offer real-time processing of transactions, providing instant feedback on whether the transaction was approved or declined. This speed contributes to the smooth payment experience that customers increasingly expect.

  • Integration and compatibility
    Payment gateways can usually be easily integrated with other ecommerce platforms and payment systems. This simplifies the management of online transactions and aids in streamlining business processes.

  • Automated processes
    Payment gateways automate the payment process, reducing the manual work and saving businesses considerable time and resources.

  • Fraud detection
    Many payment gateways offer built-in fraud detection tools to identify and prevent suspicious activities.

A payment gateway is more than just an instrument for processing transactions. It’s an investment that can enhance customer satisfaction, boost sales, improve security, and streamline your business operations—but only if you choose the payment gateway that’s the best fit for your business.

How to choose a payment gateway

Selecting the right payment gateway is an important business decision, as it directly impacts not only the operational efficiency of your transactions but also the customer experience you provide. The ideal payment gateway should align with your business model, transaction volume, target audience, and the nature of your products or services. Here are several factors to consider when choosing a payment gateway:

  • Transaction fees
    Most payment gateways charge a fee per transaction. The rate can vary depending on the provider and your business’s transaction volume. Some providers may offer tiered or volume-based pricing, which can reduce costs for businesses with high transaction volumes. It’s important to understand the fee structure to evaluate its impact on your profit margins.

  • Payment methods
    Your payment gateway should support the payment methods most preferred by your target customers. This could include credit and debit cards, digital wallets, or any relevant international payment methods if you operate in markets that accept different currencies. As we discussed earlier, customer expectations for payment flexibility and accommodation are higher than ever. This means if you fail to deliver an experience that meets these expectations, you don’t just risk losing a sale—you might lose that customer for good.

  • Security
    Security is a primary concern when dealing with financial transactions. Ensure your chosen payment gateway complies with the Payment Card Industry Data Security Standard (PCI DSS) and employs advanced security measures such as encryption and tokenization to protect sensitive data.

  • Integration
    The payment gateway needs to integrate seamlessly with your existing ecommerce platform, shopping cart, accounting software, and potentially other systems. Working with an all-in-one payment provider, such as Stripe, means that the payment gateway, the merchant account, payment processing, recurring revenue management, and fraud detection and prevention will all be within the same environment. Stripe also offers built-in integrations between native Stripe components and an exceptional experience integrating third-party components.

  • Customer experience
    Look for a gateway that provides a straightforward, intuitive checkout process with minimal redirects that could otherwise confuse customers or increase the chance of cart abandonment.

  • Global transactions
    If you plan to sell internationally, choose a payment gateway that supports multiple currencies and international payment methods. For example, Stripe supports more than 135 currencies, allowing businesses to easily accept payments in most global markets.

  • Customer support
    Ideally, choose a payment gateway that offers 24/7 customer support and has a reputation for timely, effective service.

  • Fraud detection
    Some payment gateways offer built-in tools to detect and prevent fraudulent transactions, which can help protect your business from potential losses and chargebacks. To learn more about Stripe’s expansive fraud detection and prevention solutions, go here.

  • Reliability
    Look for a provider with strong uptime guarantees to ensure your ability to accept payments is not regularly disrupted.

Invest the time in thoroughly considering your options when selecting a payment gateway. Understand what your business’s online payment needs are right now and how those needs might evolve in the future. Then find a payment gateway that supports those needs and drives customer conversion and retention. For more information about how Stripe supports payments for businesses, including payment gateway functionality, start here.

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