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Our best online payment gateways

Online payment gateways can be crucial for businesses that take payments online

Here we explain what they are, how they work, and how to choose the right online payment gateway for your business.
Last updated
November 29th, 2023

What is an online payment gateway system?

An online payment gateway is a service used by businesses to enable them to accept debit or credit card payments from customers online. As well as ensuring the transaction goes through correctly, a payment gateway keeps customers’ payment data secure and private. 

Essentially, a payment gateway is the technology responsible for sending customer information to the merchant bank and processing the transaction securely. As well as including payment processing portals found in online stores, it can also work with card payment solutions or point-of-sale (POS) terminals used in bricks-and-mortar businesses. 

They can be a great option for ecommerce businesses that want a secure way of accepting payments."

How does an online payment gateway work?

First, a customer places an order on a business website and enters their card details onto the payment page. The payment gateway encrypts the cardholder’s payment details and this information is transferred to the acquiring or merchant bank - this is the financial institution that’s in charge of the merchant’s account.

The payment gateway determines which credit card provider (Visa, Mastercard or American Express) issued the card and the information is passed on to the relevant card scheme who then transmits the payment data to the issuing bank for authorisation.

The issuing bank carries out fraud checks and ensures the cardholder has adequate funds for the purchase before sending a response back to the payment gateway to say whether the transaction has been authorised or declined.

If it’s authorised, the funds will be transferred to the merchant’s business account in a matter of days.

Is an online payment gateway right for my business?

An online payment gateway can be a great option for ecommerce businesses that want a secure way of accepting debit or credit card payments. This could apply whether you’re an online clothing store or food delivery firm, for instance. 

However, there are different types of online payment gateways so you’ll need to consider which one best suits your business needs. Different payment gateways charge different fees (this could be monthly or per transaction), accept different payment methods, and some also support multiple currencies. 

To assess whether a payment gateway is right for your business, ask yourself the following questions:

  • Where is your customer base – in the UK or overseas? If overseas, you’ll want a payment gateway that supports other currencies.

  • How do customers prefer to pay? For example, by credit card, debit card, PayPal, Apple Pay, Google Pay. 

  • What do monthly sales volumes look like? If you have lower sales volumes, you’ll want a payment gateway that only charges transaction fees. But if monthly sales volumes are high, you could be better off paying a monthly fee in return for a lower transaction fee rate.

Types of online payment gateways

Hosted

A hosted payment gateway directs customers away from your checkout page where they’ll be transferred to a third-party website or portal (such as PayPal) to enter their payment details. Once this has been completed, customers are redirected to your website to complete the sale. Hosted payment gateways are easy to set up and can be a good option for new businesses. There’s no need to integrate or maintain the payment gateway and security and fraud protection is high. However, you’ll generally pay more for this type of payment gateway.

Self-hosted

If you choose a self-hosted payment gateway, your customers’ payment details will be collected directly on your business website. The information is encrypted and sent to the third-party payment gateway to be authorised. The advantage of this option is that customers will stay on your website and won’t be redirected, making it a faster process. Disadvantages include that you’ll be responsible for ensuring the security of customer payment data and you might have to pay more for ongoing maintenance expenses.

API-hosted

An application programming interface (API) hosted payment gateway processes payments through an API, which means customers will stay on your website throughout the checkout process. It enables businesses to offer a fully customisable checkout experience and can also be integrated with setups such as mobile devices. However, you will need to invest in resources to ensure data is secure.

Types of online payment gateways

Hosted

A hosted payment gateway directs customers away from your checkout page where they’ll be transferred to a third-party website or portal (such as PayPal) to enter their payment details. Once this has been completed, customers are redirected to your website to complete the sale. Hosted payment gateways are easy to set up and can be a good option for new businesses. There’s no need to integrate or maintain the payment gateway and security and fraud protection is high. However, you’ll generally pay more for this type of payment gateway.

Self-hosted

If you choose a self-hosted payment gateway, your customers’ payment details will be collected directly on your business website. The information is encrypted and sent to the third-party payment gateway to be authorised. The advantage of this option is that customers will stay on your website and won’t be redirected, making it a faster process. Disadvantages include that you’ll be responsible for ensuring the security of customer payment data and you might have to pay more for ongoing maintenance expenses.

API-hosted

An application programming interface (API) hosted payment gateway processes payments through an API, which means customers will stay on your website throughout the checkout process. It enables businesses to offer a fully customisable checkout experience and can also be integrated with setups such as mobile devices. However, you will need to invest in resources to ensure data is secure.

What to consider when choosing the best payment gateway

Transaction fees

There are three types of fees to look out for with payment gateways:

  • A one-off setup fee of up to £250

  • A monthly subscription fee of around £10 to £50

  • A transaction fee of around 2% plus 20p per transaction. This might be higher if you accept international card payments

Not all payment gateways will charge all three. You might find a payment gateway that doesn’t charge a setup or monthly subscription fee, but transaction fees could be higher. This could be a good option if your monthly sales volumes are fairly low.

Security features

As a business, it’s crucial to protect your customer’s card data. Fortunately, payment gateways have evolved over time and offer a number of security features, with encryption technology helping protect businesses and their customers’ personal details from being stolen. When comparing options, it’s particularly important to make sure your chosen payment gateway complies with the Payment Card Industry Data Security Standard (PCI DSS). This ensures it maintains a secure environment for processing, storing and transmitting cardholder data. If your payment gateway is PCI compliant, this reduces the burden on your business to meet these requirements independently.

Accepted payment options

When choosing a payment gateway, look for one that can support a variety of payment methods. The more payment methods you can accept as a business, the more sales you’re likely to make. Most payment gateways will accept Visa and Mastercard, but not all will accept American Express. You should also consider options such as Apple Pay, Google Pay and PayPal. Plus, if you want to trade internationally, you’ll need a payment gateway that supports multiple currencies.

Pros and cons

Pros

Payment gateways enable businesses to accept card payments securely and safely
A payment gateway reduces the risk of card fraud
International payments can be supported, making them ideal if you have overseas customers
Payment gateways can be easy to set up and integrate into your website

Cons

Setup, monthly subscription and transaction fees may apply
You might need to organise your own PCI compliance
Some payment gateways come with minimal technical and customer support
Integration may not compatible with certain online stores or platforms
Ensuring your customer's personal data is secure when they make a payment is fundamental, and online payment gateways can make the process simple. But make sure you're happy with the added cost and shop around to find the right type of gateway provider for your business.

FAQs

Are online payment gateways secure?

Yes, online payment gateways use encryption protocols to encrypt sensitive payment data and keep it safe. Some also offer tokenisation services which can further enhance payment security. This replaces sensitive payment data with unique tokens that are useless if compromised. Secure payment gateways should also adhere to PCI DSS standards.

How can I improve the customer’s experience with my payment gateway?

To improve the customer experience, it’s important to offer multiple payment methods, including international payments, as well as ensure security is the highest it can be. Choosing an API-hosted payment gateway means customers won’t be directed away from your website when they pay, speeding up the payment process, and you’ll be able to offer a fully customisable checkout experience.

How do I add a payment gateway to my website?

How you add a payment gateway to your website will depend on the type of payment gateway you choose. Some ecommerce platforms offer plugins and extensions to make integration pretty easy. Others will require you to manually add code to your website to integrate the gateway.

About the author

Rachel Wait
Rachel has written extensively on credit cards, pensions, insurance and mortgages for leading price comparison sites and the national press.

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