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What is a payment gateway?

What is a payment gateway, and do you really need one? The ins and outs of the world of payment gateways all explained here

Starting a business is always exciting, but when you have dreams of selling online, there’s even more to look forward to.

Equipped with fresh stock and a shiny new website, you’re eager to get the ball rolling – however, the world of ecommerce is a complex one. If you want to take payments online, there are all sorts of bits and bobs you’ll require to make sure the process is safe, efficient, and legal.

An essential piece of the online payment puzzle is a payment gateway – a piece of tech that essentially serves as your online till, allowing customers to securely purchase your products via the internet.

Since payment gateways are fundamental to the inner workings of an ecommerce site, you’re probably wanting to know a little more about them. Here, we’ll go into some more detail about what a payment gateway is, how it works, and how much it’s going to cost (both to buy outright and per transaction).

Read on as we explain the payment gateway essentials, and help you on your way to ecommerce success.


In this article, we will cover:

What is a payment gateway?

How do payment gateways work?

Types of payment gateways

How much do payment gateways cost?

What are the best payment gateways?

Tips for choosing the right payment gateway for you

Next Steps


What is a payment gateway?

A payment gateway bridges the gap between the customer’s card and your business bank account, and plays an essential role in accepting credit or debit card payments online.

Payment gateways protect card details by encrypting sensitive payment information, such as the main card number. This ensures that the information passed between the customer, merchant, and acquirer (the bank that approves the payment) remains secure.

If you’re looking for information regarding the UK’s best merchant service providers, follow the link for a full-fat guide.


How do payment gateways work?

Stage 1:The customer places an order on your website or in store.

Stage 2: The web browser encrypts the information (ie: card and account details) via SSL (Secure Socket Layer) encryption.

Stage 3:

  • The customer’s encrypted card details are forwarded to the payment gateway via the merchant account.
  • The payment gateway then passes on the transaction details to the payment processor used by the acquirer.
  • This payment processor then forwards the transaction information to the card association (e.g. Visa, Mastercard).

Stage 4:

The customer’s bank receives the authorisation request and sends a response code back to the payment processor, detailing whether the payment has been approved or declined.

Stage 5:

The merchant account then submits all approved authorisations to the acquirer, to be signed off and transferred into the merchant’s business bank account by the acquiring bank – a process that takes approximately two days.


Types of payment gateways

Redirects

Your customers are redirected to an external service, which handles and processes payments on your business’ behalf. While this option is convenient for startups looking to get their ecommerce set up quickly and with relative ease, this method involves taking the customer off your site, which could have a negative effect on custom.

Checkout on-site, payment off-site

The checkout part of the purchase will occur on your website, but the payment processing happens via the payment gateway’s website.
Stripe is an example of a payment gateway that uses this method.

Payment onsite

If you have a large ecommerce site that anticipates multiple high volume sales, setting up your own payment processing system on site is a good option.

This method allows you to create a smoother user journey that keeps your customers on your site. You also have complete autonomy over the design and overall checkout experience.

However, with great freedom comes great responsibility. This option can come at a high cost, and demands a certain degree of technical know-how. And as well as the gateway itself, you’ll need to handle your own merchant account, SSL certificate, and PCI compliance.

Payment gateways vs. payment processors

A payment gateway securely transmits online payments to the payment processor. The payment processor then handles the transactions made between credit/debit cards and acquiring banks.


How much do payment gateways cost?

The overall cost of your chosen payment gateway will depend on four separate charges. These are as follows:

  1. One-time setup fee: £0 – £250
  2. Monthly fee: £10 – £50
  3. Transaction fee: £0.00 – £0.25
  4. Transaction rate: 1.00-5.00% (this may be charged by your merchant account)

The above costs will come into play when comparing gateways. Consider precisely how you’re likely to use your account: for example, if you’re likely to be processing a large number of transactions, you’ll need to look for a low transaction rate and transaction charge as a priority over a low monthly fee. In other words, a higher monthly fee can be offset by a lower transaction charge, as long as you have a high enough volume of transactions to process.


What are the best payment gateways?

Here’s a quick-fire breakdown of the best payment gateways on the market today:

Payment gateway: Best for: Monthly fee: Transaction fee:
Worldpay Best for popularity and familiarity £19.95 0.75-2.75%
Paypal Best for transfers £0 1.9-3.4% (+20p)
Stripe Best for full service £0/strong> 1.4-2.9% (+ 20p)
Amazon Pay Best for ease of use £0 1.4-3.4% (+20p)

If you want a more detailed account of these providers and what they have to offer, head to our article on the best payment gateways.

Worldpay – best for popularity and familiarity

Cost: £19.95 (monthly fee); 0.75-2.75% (transaction fee)

Worldpay is the largest payment processor in the UK. It securely handles over 10,000 transactions every minute, and is trusted by more than 300,000 UK businesses.

Worldpay is a dependable payment gateway that accepts all major cards, and facilitates payment processing in 116 different currencies. It’s perfect for businesses looking for a gateway that’s proven, as well as popular.

PayPal – best for transfers

Cost: £0 (monthly fee); 1.9-3.4% (+20p) (transaction fee)

Another well-known name as far as payment service providers are concerned, PayPal insights trust and loyalty by virtue of being a household name. With a user-oriented interface and no setup or monthly fees, PayPal is perfect for those looking for a provider that talks the talk and walks the walk.

Stripe – best for full service

Cost: £0 (monthly fee); 1.4-2.9% (+ 20p) (transaction fee)

The new kid on the payment gateway block, Stripe offers a sleek, forward thinking payment gateway option that’s easy to integrate with your pre-existing website. Designed to make the most of exciting ecommerce opportunities, Stripe is great for businesses looking to grow their online shop with an affordable, uncomplicated gateway.

Amazon Pay – best for ease of use

Cost: £0 (monthly fee); 1.4-3.4% (+20p) (transaction fee)

With a trusted brand identity and a cool 310 million users, Amazon Pay is one of the nation’s favourite payment gateways. With a reputation for speed and security, Amazon Pay is well suited to businesses with efficiency at their core. This payment gateway safely stores customers’ contact and payment details, which speeds up the process and keeps the operation swift – particularly when it comes to repeat custom.


Tips for choosing the right payment gateway for you

  1. Safety first

    When selling online, the security of your customers’ data should be your top priority. Always check the PCI compliance level of your payment gateway provider, and only consider merchants that offer PCI DSS Level 1.

  2. Integration

    Simply put, a payment gateway is a piece of software. This means it needs to be able to integrate with the software and programs that you already use to run the technical side of your business (i.e.: your website).

  3. Reliability

    Uptime and reliability are key components of any well-run website. An inactive gateway means a stoppage in sales opportunities, which may be damaging to both your business’ reputation and your bank balance. To avoid this, be sure to check that your provider offers an uptime guarantee.

  4. Fraudsters beware

    Before taking the plunge, look at your chosen gateway’s fraud protection policy. The top payment gateway providers cooperate with their merchants to set the right level of fraud detection, so they can sell to all their customers without throwing money down the drain.

  5. Accepted payment methods

    At the very minimum, you need to be able to handle both debit and credit card transactions. The more advanced and established gateways, meanwhile, will allow you to take a true variety of payment options. It’s worth looking into what your customers are most likely to pay with, and making an informed decision based upon that preference.


What about using multiple payment gateways?

As your business expands and you begin to sell abroad, varying levels of support will be available from each provider for domestic or international payments. This means that some gateways may only cover certain payment methods and currencies.

Adding multiple payment gateways to your ecommerce service will result in transactions being routed to the gateway that provides the best support for a particular region. The result? More successful transactions across multiple markets.


Next steps

We’ve been through what a payment gateway is, looked at how they work, and touched upon some of the different options out there today. Next, it’s time to get stuck into some quotes, tailored specifically to your business needs – hop to the top of the page, and we’ll put you in touch with suppliers who are geared up to cater for your every business need.

Or, if you’re hankering for a little more info, we’ve put together a helpful guide detailing the best payment gateways on the market today. Still in doubt? Then check it out.