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Payment Gateways: Everything You Need to Know

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As technology’s hold on our day-to-day activities tightens, more businesses are moving online. According to the Digital Market Outlook, the number of e-commerce users in the United Kingdom is expected to grow to 62.1 million in 2025. With this in mind, businesses need secure and efficient ways to accept online payments for their e-commerce operations. But how do businesses collect funds conveniently and securely?

That’s where payment gateways come in…

What is a payment gateway?

A payment gateway is a digital payment processor that allows businesses to accept online customer payments. It acts as an intermediary between the customer and merchant banks, transmitting the customer’s payment information to ensure a secure transaction.

Payment gateways are essential for e-commerce businesses as they provide a secure way for customers to pay for their purchases and help businesses streamline their payment processing operations. Payment gateways refer to financial services such as Stripe, Braintree, Adyen, Square, or Worldpay that give merchants access to various digital payment methods on their platform, from Visa to Apple Pay.

Here’s how payment gateways work

  1. Customers purchase online and enter their payment information into the merchant’s checkout page.
  2. The payment gateway encrypts and transmits the customer’s payment information to their bank.
  3. The customer’s bank verifies the payment information and approves the transaction.
  4. The payment gateway sends funds to the merchant’s bank account.
  5. Finally, the merchant’s bank deposits the funds into the merchant’s regular bank account.

That’s not all! Payment gateways can help businesses reduce fraud, improve their cash flow, and help with scalability. They’re a handy tool for businesses that want to accept online payments.

The difference between a payment gateway and merchant accounts

A payment gateway is a software application that processes online payments, whilst a merchant account holds funds from online sales before depositing them into the merchant’s regular bank account.

To accept online payments, merchants need a payment gateway and a merchant account. The payment gateway will process and send the customer’s payment information to the merchant’s bank account. The merchant’s bank will then deposit the funds into the merchant’s regular bank account.

Types of payment gateways: hosted vs self-hosted

There are two main types of gateways: hosted and self-hosted. Let’s learn more about each and how they can benefit online businesses.

Hosted payment gateways

Hosted gateways direct customers away from your checkout page. Instead, when the customer is ready to make a purchase, they click on a ‘buy now’ link, which redirects to the host or payment service provider (PSP) page. They offer a “plug-and-play” solution, making them the preferred choice for small to medium-sized e-commerce businesses.

Easy to use. Hosted gateways are user-friendly with a simple setup. The payment gateway provider hosts, so you don’t need to install or maintain any software on your servers. 

Secure. They are often considered more secure because the provider is responsible for maintaining security measures and complying with industry standards, like PCI DSS compliance.

Quick integration. Integration with POS, mPOS and other systems is usually straightforward, making it ideal for small teams and online retailers.

Less responsibility. Hosted gateways mean you don’t need to worry about server maintenance, updates, or security protocols. This can save you a lot of time and effort!

Self-hosted payment gateways

Self-hosted payment gateways offer increased control and customisation but require more technical prowess. Expect to see these systems at larger corporations that may have technical teams to support them.

Full control. You dictate the payment process, which allows for a customised checkout experience. This can be crucial for businesses with unique needs.

Low cost. Since you’re hosting the gateway, you might save on transaction fees. However, this method may include setup and maintenance costs.

Flexible. Self-hosted gateways can be tailored to your requirements, which is great if you have an in-house dev team.

Choosing a payment gateway for your business

It is important to compare different payment gateways to find one that meets the specific needs of your business.

Consider the payment methods you need to accept and the user experience you want to provide, as well as the following pointers:

  • The types of payment methods the gateway accepts
  • The fees the gateway charges
  • The features and functionality the gateway offers
  • Fraud protection and security measures
  • Whether they’re fully regulated in the UK
  • Customer support and reviews

Ultimately, payment gateways play a pivotal role in how smoothly your customers complete transactions on your website, and the right choice can be key to your business’s success. Your choice between hosted and self-hosted payment gateways should align with your business size, your team’s tech capabilities, and any customisation needs.

Frequently asked questions

Why do I need a payment gateway?

Payment gateways act as a cash register for your online store. You need one to accept payments online, making it easy and convenient for your customers to pay for goods and services.

How do I choose the right payment gateway?

Consider factors like transaction fees, security, and the gateway’s compatibility with your e-commerce platform. You’ll want one that integrates smoothly with your website for a seamless user experience.

Do I need a merchant account, too?

Not always. Some payment gateways offer an all-in-one solution where you don’t need a separate merchant account.

Are payment gateways secure?

Payment gateways use encryption and tight security measures to protect sensitive data, ensuring you and your customers are safe from fraud or data breaches.

What is PCI DSS compliance?

The Payment Card Industry Data Security Standard (PCI DSS) is a set of industry-wide requirements that protect your business and customers when taking payments.

What fees can I expect to pay?

Fees can vary between gateways but typically include a transaction fee, a percentage of the sale, and sometimes a monthly fee. Read the fine print to understand all costs, and always choose a gateway that fits your budget.

Can I switch to a different payment gateway?

You can switch if you’re unsatisfied with your current gateway but planning in advance is essential to minimise disruptions to your business.

The takeaway

Payment gateways are essential for e-commerce businesses. They provide a secure, convenient, and affordable way to process payments and offer several other benefits to help businesses grow and succeed.

If you’ve already got a payment gateway and want to add instant payments at checkout, then we can help. Our e-commerce plugin delivers instant low-fee payments directly from the customer’s bank account to yours, reducing the need for complex merchant accounts and payment gateways. It can also be integrated with point-of-sale for seamless checkouts. Find out more here.

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