Any business that sells online aims at providing the quickest, most secure, and simple-to-use service. It should effectively satisfy the needs of both – the customer and the business and ensure strong protection against frauds, offer a variety of payment options, smoothly integrate with 3d party platforms, contribute to a positive customer experience, and more.
For efficient transaction management made via credit or debit cards, e-commerce businesses embed payment gateways in their platforms. A carefully chosen or developed gateway determines many aspects of the purchasing process from the type of currencies the business will accept to transaction fees, to payment methods, and more.
In this article, you’ll discover how to choose the right payment gateway, what are their types, and how to effectively integrate a payment gateway into a website, an e-commerce platform or an app.
What is a Payment Gateway?
A payment gateway is a vital part of any buying/selling process online. It allows customers to purchase goods and services much easier by enabling the transfer of money from the customer’s account to the seller’s account within a few seconds.
Apart from sending and receiving payment data, payment gateways should ensure that transactions performed are secure. Thus, they encrypt transaction data and use security protocols to pass and receive the data.
For example, as payment gateways transfer the user-sensitive transaction information, they have to guarantee the security of such data as CVV code, card number, card holder’s name, etc. That’s why each solution has to be compliant with the PCI DSS certificate. This implies strong data protection, regular testing, encryption, access control elements implementation, and all the other things that might be required for enhancing security.
How Does Payment Gateway Work
Being a mediator between the customer and the merchant, a payment gateway covers a wide range of financial operations from money authorization when the system verifies that the buyer can pay for the ordered item, to refund in case of a canceled order.
Below is a description of how it works:
- The customer confirms the order and fills in the transaction data. Encrypted data reaches the merchant app’s server via a secure connection.
- The app passes the transaction data to the payment gateway. The gateway reads the data and verifies it with the issuing bank, e.g. that the transaction performed won’t exceed the buyer’s bank account balance or credit limit.
- After that, the encrypted card information is sent to the card’s network for data verification, e.g. Visa, Mastercard, or American Express.
- As the card network approves the transaction the data goes to the issuing bank that connects to the acquiring bank to move money. This way, the money from a buyer’s aka issuing bank goes to a seller’s aka an acquiring bank.
- When the transfer is complete, the issuing bank sends back the confirmation within the same chain of participants.
The scheme below might seem complicated however the whole process takes just a few seconds.
The Types of Payment Gateways
There are several types of payment gateways to choose from depending on the size and needs of your business. Let’s highlight their pros and cons as well as consider their integration difficulty so that you can easily choose the one for your company.
Hosted Payment Gateway
The hosted gateway redirects your customers from the app to its platform to make the purchase and takes them back when the transaction is complete. Among the most famous of them are PayPal, Amazon Pay, SagePay, etc.
One of the key advantages of such a solution is a simple integration process: for the apps using popular e-commerce platforms (like Magento or Shopify), it might be enough just to install an extension.
In case of having a custom web or mobile application, you might want to hire software developers for help but most of the service providers have detailed guidelines explaining how to integrate their payment gateway. One more significant advantage is that all the security issues are managed by the service provider, too.
What about the disadvantages? Firstly, the redirection of customers to third-party services spoils user experience and decreases conversion as the process becomes more time-consuming and cumbersome. Secondly, in the case of changing the partner, you might lose your client database since service providers keep all the data.
This type of payment gateway is preferable for small and mid-sized businesses since it provides a ready-made, cheap solution that can be simply integrated into other software.
Integrated Payment Gateway
With an integrated gateway, the customers stay at your app and the transaction gets completed without the redirection elsewhere. This type of solution is provided by Authorize.net, MangoPay, SagePay Direct, etc.
The advantages of an integrated over a hosted gateway are:
- a smoother user experience – your customers don’t need to switch from platform to platform and enter their data several times,
- enhanced integration with other company’s software, e.g. transactions can be automatically sent to accounting software;
- better branding and customization to the needs of a certain company, e.g. automatically adding tax;
Along with these pros come cons: you have to take care of fraud protection and users’ data security (PCI DSS compliance) as well as spend more effort on the solution integration process. While some apps can use APIs to integrate a non-hosted payment gateway easily, those running with a custom engine will require technical skills or the help of skilled software development specialists.
Integrated solutions will be a good choice for medium and large companies that focus on their branding and want to provide a smooth user experience.
Custom Developed Payment Gateway
This type of payment gateway enhances features of the previous one providing the best possible level of control over the transactions while requiring deep technical expertise. Using your own custom gateway, you do not need to rely on third-party services and share any data with them. Moreover, it allows adding any modifications and changes you might need.
The list of disadvantages of such a type includes price – a software development team will be needed, time – the development, testing, and integration will take a while, and security-related challenges – meeting PCI requirements and handling documentation issues. The custom solution is an option to choose for large companies and enterprises.
The custom payment gateway is an option to choose for large companies and enterprises as it’s the most secure option that can be customized to the specifics of a particular business.
Reasons to Choose Custom Payment Gateway Development
Although the development of custom payment gateway involves much time, development effort, and money, a wide range of companies still prefers building their own payment gateways. That’s because a crafted, robust, and well-protected payment gateway can significantly foster business growth through an increase in customer trust and satisfaction.
One of the reasons why businesses turn to custom payment gateway development is the most sensitive issue that’s been present for a while in the online sales industry – shopping cart abandonment.
Some of the motives for that include:
- time-consuming and complicated check-out when customers have to enter their data several times or get through many steps in order to make a payment;
- addition of unexpected extra costs, e.g. hosted payment gateways can charge fees for using their services;
- security concerns due to the use of sensitive credit and debit card details customers have to place online;
- lack of payment methods, e.g. Americans prefer paying with Visa, American Express, and PayPal, MasterCard is more widespread in Canada, Europe, and other locations; though there are always more alternative payment options that can be added, e.g. automated clearing house (ACH) or cryptocurrencies.
All these issues can be effectively addressed in custom developed payment gateway solutions. They can offer the following benefits:
- custom functionality – you can add any functionality functions that is are essential for your business success from multiple currency transactions to payment methods, to integration with 3d party business software;
- lower fees – any third-party payment gateway involves fees for usage or performing transactions or both; with custom solutions you don’t have to add extra fees to the products and services you sell, avoiding any disappointment with the final price from your customers;
- product offer – having a robust and effective custom payment gateway solution means that you can always offer it to your business partners or other businesses for use, gaining your extra profits from that.
Online Payment Gateway Integration: Common Steps
The payment gateway integration steps depend on the type of gateway you choose for your business.
If it’s a hosted payment gateway, you will need to:
- analyze various types of payment gateways and choose the one that would meet your business requirements, including features, security, installation fees, fees for transactions, etc.;
- notify the gateway provider and register in their system in order to link the payment gateway account with your platform; at this step, you’ll receive the access data such as a secret and a public key;
- connect the payment gateway to your platform or app using its API and admin panel; if you have any challenges at this point, you can turn to integration service support;
- test your payment gateway by using a sandbox account offered by the service provider to explore the possibilities of the installed solution and test it for any faults.
Although it doesn’t require a software development team to embed the hosted solution into your platform or app, you’ll have to do much customization so that the payment process will work the way you expect it to.
When installing an integrated payment gateway, the most important part is to ensure that your application combined with the gateway solution meets all the security measures such as PCI-DSS. This can be done through the implementation of a variety of ready-made APIs and modules.
Alternatively, there is always an option to rely on a team of professional e-commerce development specialists. They will easily embed the integrated payment gateway into your platform, app or a website or build a custom payment solution 100% adjusted to all your customer and business requirements.
If you’re aiming at creating a reliable and solid custom payment gateway solution, SCAND development team is ready to assist you with that. Having more than20 years of experience in custom software development, SCAND offers a team of professionals skilled at simple payment gateway creation and integration. Regardless of what application you have — web, mobile, or both of them — our engineers can help you with the integration of the most suitable payment gateway as well as develop a custom solution focused on your business goals. Feel free to ask any questions and delegate to us the payment gateway integration process.