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eCommerce Payment Gateways Explained and Simplified

Payment gateways allow you to conduct non-cash transactions for your business. Here's what you need to consider when evaluating and choosing gateway providers.

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Payment gateways are the backbone of online shopping. Thanks to eCommerce payment gateways, processing payments is simple for businesses of any size or type. While some businesses build their own payment gateways, it’s far more common to partner with a gateway provider and avoid the headaches and costs associated with compliance, international transactions and payment security.

A high-quality eCommerce payment gateway makes the checkout process simpler, protects customers’ private financial data, and provides a plug-and-play solution for vendors. Here’s what you need to know about eCommerce gateways and how to choose the right one for your business.

What Is an eCommerce Payment Gateway?

Simply put, payment gateways are the technology that allows merchants to accept electronic payments — debit or credit cards — from customers. Payment gateways include the actual card-reading devices at the checkout counters in physical store locations as well as the payment portals on eCommerce websites. More recently, payment gateways have evolved to facilitate cryptocurrency and smartphone payments for customers.

Payment gateways are distinct from payment processors. Payment processors connect the buyer’s bank account to the merchant’s account and complete the actual money transfer. A payment gateway collects customer information. Then, the processor uses that information to finalize the transaction. Another critical element of a payment gateway is encryption. Encryption protects the customer and merchant data from bad actors that might try to infiltrate and collect that information.

The three most common types of payment gateways are:

  • On-site payments. Merchants handle the entire transaction on their systems and servers. This option is common with large retailers that want more control and have the resources to keep up with security and compliance.
  • Redirected payments. Redirects take the customer to the platform’s payment site to complete their transaction. Sometimes the redirects return the customer to your checkout page to confirm the purchase.
  • On-site checkout, off-site payment. In this setup, the customer completes the entire checkout process on your site, but the actual payment happens on your partner’s servers and systems.

Online retailers can either access payment gateways from individual banks or, more commonly, partner with a payment gateway platform that already has these relationships in place. Some popular payment gateway providers include Square, PayPal, Stripe and Apple Pay.

The Benefits and Limitations of Payment Gateway Platforms

Screenshot of online payment option buttons including Paypal and Apple Pay

Payment gateways offer some significant advantages for eCommerce merchants, namely convenience for them and their customers. But, they can’t solve every problem. Whichever payment gateway you choose, you’ll have tradeoffs and compromises.

Redirected payments are simple for merchants but confusing for customers. Redirected payments provide the perfect opportunity for customers to abandon their carts. Since the average cart abandonment rate across industries is nearly 70%, introducing additional barriers during the checkout process can drive that number even higher. 

Customers know and trust certain gateway providers. When customers click a PayPal or Apple Pay link, they know their transaction is secure. Hundreds of millions of shoppers have PayPal accounts, and because of their size and scale, they have agreements with thousands of financial institutions. So, your customers across the globe can complete their transactions without a hitch.

Customization for merchants varies depending on the platform. For redirected payment gateways, the customization options are extremely limited or nonexistent. But, direct payments keep the checkout process on the merchant’s website. All of your branding and the look and feel are consistent, and you have a little more control over the process.

No platform is universal. No single payment gateway can cover every payment method. In fact, many merchants opt to stack their payment gateways to ensure that customers have an option that works for them.

Considerations for eCommerce Brands

The checkout process is one of your brand’s most important user experiences. When choosing a payment gateway, there are plenty of excellent options available. Therefore, the exact one you select will come down to several factors:

  • What do your customers already use? Select and stack the payment gateways your customers use to keep it simple and secure.
  • Is the payment gateway encrypted? The Payment Card Industry Data Security Standard (PCI DSS) is the gold standard for payment gateways. Any platform you choose should have iron-clad security to protect your customer’s data and your reputation.
  • Are their fees reasonable? Every time you run a transaction through a payment gateway, a small percentage goes toward fees. Online retailers need to weigh the convenience of multiple payment gateways with their associated fees to get the right mix for your budget.

Understanding and implementing a payment gateway is one of the first and most critical decisions for any eCommerce brand. Instead of dedicating time and resources to building an in-house solution, brands that partner with a third-party gateway can leave it to the pros. 

Scalefast powers DTC eCommerce for global brands and provides end-to-end service and compliance. Our specialty store and international expansion expertise integrate your DTC channel seamlessly under a single software solution. Ready to sell globally while looking local? Talk to one of our eCommerce experts or schedule a demo today.

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