Most people are familiar with payment gateways without even knowing it. Payment gateways are a convenient service where credit card information is securely transferred from the consumer to the business’s merchant processor. Payment gateways verify a customer’s billing information and funds and approve purchases. Anyone who makes an online or mobile purchase utilizes a payment gateway to complete the purchase. Businesses are all following the trend, and this article outlines the different types of payment gateways that are available in the marketplace.
Before going into the different types of payment gateways, it is important to understand what a merchant account is. Merchant accounts are special bank accounts that allow for a business to accept multiple forms of payment, like debit or credit cards, as well as different brands of cards (like Visa, MasterCard or Discover). This conveniently provides the customer with the flexibility needed to purchase the product online.
A third party processor, also known as a payment processor, is a financial institution that provides all of the payment processing services. They connect to the payment gateway and the merchant account. Some payment processors can provide direct merchant account services as well, but not always. Examples of a third party processor include PayPal, Square and Stripe.
Now that you have a better understanding of payment gateways, merchant accounts and third party processors, you can research the different types of gateways to determine which is best for you and your small business.
Types of Payment Gateways
There are two major types of payment gateways: modern payment gateways and classic payment gateways.
Classic Payment Gateways are typically utilized by larger businesses. Some examples of classic payment gateways include Authorize.net and WorldPay. These gateways can be more convenient for your business because their transaction fees are often lower than modern payment gateways. If a business has a customer base that will be purchasing products online on a regular basis, these fees can add up, and it may be worth it to set up a classic payment gateway. The cons to a classic payment gateway are:
- A business will need to find a bank that offers merchant accounts, and they will need to apply for an account with them. This could take several weeks to process.
- A business owner will also need to have the technical skills to be able to integrate the payment gateway onto their website, which creates an integrated gateway. Integrated gateways have their own set of challenges, with the most significant being responsible forPayment Card industry Data Security Standard, which is referred to as PCI-DSS (or just PCI) compliance.
Modern Payment Gateways include PayPal and Stripe. These gateways do not require a merchant account in order for a business to receive funds from a purchase. This means that a business is not required to open accounts with different banks and can be set up much more quickly as a result. A business can simply plug n’ play with a modern payment gateway. However, there are two major downsides to modern payment gateways:
- They typically charge higher transaction fees
- Most modern gateways send customers to a different website to make a payment, which is called a hosted gateway. Hosted gateways are more inconvenient for customers and ultimately create a higher risk for the customer not to make that purchase. However, with hosted gateways, you aren’t responsible for keeping them PCI compliant. They can also provide better data security.
It is typically best for a larger business with many online purchases to utilize a classic payment gateway due to the lower transaction fees. For a smaller business without as many online or mobile purchases, a modern payment gateway may be better so that they do not need to be held responsible for data security and PCI compliance.
Top Payment Gateways in the Market
In addition to comparing modern versus classic payment gateways, cost, security and ease of use are important factors to consider. Here is a high level comparison of a few major payment gateways:
Braintree was acquired by PayPal, and they accept traditional credit card payments, but also payments from Apple Pay, Venmo and Apple Pay.
- Pricing: 2.9% + $0.30 transaction fee
- Chargeback Fees: $15
- Security and PCI Compliance: Provided
- Ease of Set Up: Longer set up time
- Shopping Cart Integrations: 3DCart, BigCommerce, WooCommerce, yodel
- Supported Payment Options: PayPal, Apple Pay, Android Pay, Venmo, and most creditand debit cards, including Visa, Mastercard, American Express, Discover, JCB, and Diner’s Club. Also available to international merchants in 45+ countries.
- Customer Support: can call via phone, but the main site has a ticket system in place for customers
Stripe is a modern payment gateway that is becoming more popular, especially with small businesses. Stripe has also come up with Atlas, which is a payment gateway product aimed at international purchasing.
- Pricing: 2.9% + $0.30 transaction fee (after first $1million)
- Chargeback Fees: $15
- Security and PCI Compliance: PCI Level 1 Service Provider
- Ease of Set Up: Quick set up
- Shopping Cart Integrations: 51 total, some of which include Shopify, BigCommerce, 3DCart, CoreCommerce, Cart66, Volusion, Drupal, WooCommerce, Magento, Prestashop
- Supported Payment Options: S. businesses can accept Visa, MasterCard, American Express, JCB, Discover, and Diners Club. They also accept BitCoin, ApplePay and AndroidPay. International: Australian, Canadian, European, Hong Kongese, Japanese, and Singaporean businesses can accept Visa, MasterCard, and American Express.
- Customer Support: free 24×7 phone and chat support
Authorize.Net is a classic modern payment and has been a longstanding service since the 1990’s, but it isn’t easy to transfer data from it to another payment gateway if needed.
- Pricing: $49 setup fee, a $25 monthly gateway fee. The transaction fee is 2.9% + $0.30.
- Chargeback Fees: $25
- Security and PCI Compliance: Compliance is up to the business
- Ease of Set Up: Can take time based on setting up the merchant account.
- Shopping Cart Integrations: 75 + Certified shopping carts; 100+ Compatible shopping carts
- Supported Payment Options: e-check, ApplePay, Discover, American Express, JCB, Visa, PayPal
- Customer Support: 24×7 online chat or by phone.
PayPal is one of the most popular payment gateways and falls in the modern gateway category. It can be used as a primary gateway, but it takes customers to their third party site, so some businesses use it as an option for purchasing.
- PayPal Standard and Express Checkout: 2.9% + $0.30 per transaction (with option for volume discounts), and a 3.9% + fixed fee per international transaction. No monthly/setup fee.
- PayPal Payments Advanced: 2.9% + $0.30 per transaction, $5 monthly fee
- PayPal Payments Pro: 2.9% + $0.30 per transaction, $30 monthly fee
- PayFlow Link: 2.9% + $0.30 per transaction; merchant provider fees + $0.10 per transaction
- PayFlow Pro: 2.9% + $0.30 per transaction; merchant provider fees + $0.10 per transaction; $25/month, $99 to set up
- Chargeback Fees: $20
- Security and PCI Compliance: Checkout security is up to the business, or you can utilize their PCI compliant solution called PayFlow Link.
- Ease of Set Up: A business is required to find a merchant services provider to support it.
- Shopping Cart Integrations: PayPal has their own shopping cart, PayPal Checkout, but you can also set up a third-party shopping cart with permission
- Supported Payment Options: Visa, MasterCard, American Express, Discover, JCB, Diner’s Club.
- Customer Support: Via toll free number, email or asking the PayPal community
Many small businesses like Square because it can easily connect to Apple products for purchases. The equipment is ideal for one time small purchases.
- Pricing: in person sales are 2.75% per transaction. For online payments, they charge 2.9% + $0.30 per transaction
- Chargeback Fees: They offer chargeback protection and covers up to $250/month
- Security and PCI Compliance: yes
- Ease of Set Up: Quick set up
- Shopping Cart Integrations: it has its own eCommerce app. If you integrate other shopping carts, you would be responsible for any monthly charges that incur.
- Supported Payment Options (debit cards/international payments – not available/recurring payments- yes via Square Recurring Invoices and Square Invoices – the fee is 3.5% + $0.15 per payment): You utilize Square’s Transactions API
- Customer Support: Seller Community, email, and phone access. If a merchant’s account shuts down or funds are held until additional information is verified, Square will terminate the account, and one can only contact their customer support via email.
In order to navigate payment gateway options, businesses need to consider cost, security, ease of use and several other factors. All of these payment gateways have their pros and cons. Based on our research, here are a few final recommendations that might help as well:
Best Online Payment Gateway for Small Businesses
PayPal stands out as the best payment gateway for small businesses. The main reason is because there are several different plans for online sales that can range from one-time events to heavy sales activity. There is also an easy plug-and-play design for almost all platforms.
Best Payment Gateway for Worry-Free Security
The payment gateway with the most security features would be Stripe. Stripe is directly responsible for PCI compliance, whereas PayPal and others are not.
Best Payment Gateway to Use with Your Own Merchant Account
Authorize.Net is likely the easiest for a business that has their own merchant account. It has the most partnerships with merchant accounts given its long history in the business.