The operations of a business are built on knowledge: knowing the product you are selling, knowing how to produce it, market it, sell it, and deliver it to your customers.
With the growing eCommerce market in the United States, there is pressure for many businesses to have an online arm to their company. As shown through Statista, eCommerce has steadily climbed every quarter over the past 10 years, with an especially high climb during the COVID-19 pandemic. According to those metrics, in the first quarter of 2021, 13.6% of all retail was done online in the U.S., up from below 8% five years earlier in 2016.
Because of this, businesses must put even more effort into how they can effectively conduct business online. As stated above, to do this, the business must have a plan for trading online, know the processes of online trading, and partner with other services to effectively do this (and conduct any business online at all).
One of these providers that any business must partner with and utilize to effectively carry out business online is a payment gateway provider. Payment gateways are part of the payment processing branch of online businesses. Because of its mystical and hard-to-understand jargon, payment processing can be a confusing part of eCommerce for many business owners, especially those that are not the most tech-savvy.
We’ll break down what business owners should look for when choosing a payment gateway provider in this guide. We will also walk briefly through the process of receiving online payments to ensure a greater understanding of what a gateway is, what they do, who provides it, and why these things may matter to a small business.
Payment Processing 101
Before getting into what to look for in a payment gateway provider, it would be most beneficial to understand what a payment gateway is exactly, and perhaps even more importantly, what it is not. This section will briefly walk through the steps of online payment processing. However, a few terms to help guide this explanation are necessary.
Traditional Payment Processor
A payment processor is a service that an online merchant uses to legally and safely take the information input by the consumer (think a credit card) and relay that information to both the acquiring bank (the bank of the merchant) and the issuing bank (the bank of the consumer).
This information is transmitted to both banks. It lets the issuing bank release the funds for the good or service to the acquiring bank.
A crypto payment processor works a little bit differently than a traditional payment processor.
Crypto Payment Processor
Like a traditional payment processor, a crypto payment processor is a payment service that facilitates the acceptance of crypto payments. However, a crypto payment processor can immediately transfer Bitcoin and other cryptocurrencies into fiat currency. The main difference is that this type of processor doesn’t need to confirm bank information to authenticate and approve the transaction. This makes for a more convenient, easy, and quick transaction process.
Consumer Inputs Information
The first and most easy-to-understand part of the process is the consumer inputting payment information into the online payment platform. After choosing their goods or services, the consumer gives the card information to purchase those things. This information is the package that the rest of this section will be talking about. Not only is it vital to keep it safe, but it is also vital to keep it uncorrupted, so the payment can be successful and become approved by both banks.
Payment Gateway Encrypts Information
Once the information is input, it is put into the payment gateway. It is easy to think of this as a digital cash register. It keeps the information (standing in for cash in the analogy) safe until it can be shipped to the necessary location for approval or deposit. A payment gateway will encrypt the information, making it a digital safe for transportation.
Why it does this is obvious: to keep people trying to steal vital information unable to do so to the information input by the consumer. Encryption is the main way this is done. There are many different types of gateways, but that will be dealt with later in this article.
Once the information has been encrypted, it is then sent to the payment processor. This processor could be the umbrella company over the gateway as well, or it could be a different provider. Either way, the gateway’s job is to encrypt the information to safely get to the processor and then to the two banks involved in the transaction.
Processor Plays the Role of Middleman
Once the information arrives successfully at the payment processor, its job is to safely contact the two banks to inform them of the request to transfer funds. This is still information encrypted (generally) by the payment gateway. What the processor does is put it in terms that the banks’ systems understand. They hand the information off, wait for approval, then send it back to the consumer to let them know if it was approved or not.
All this happens while the consumer sees some variation of pixels in the form of dots dancing across their computer screen. It usually is a matter of seconds, if not less, for all of this to happen, but it is part of any online purchases.
The information required to get to several destinations needs to be kept safe and secure, and the payment gateway should ensure that this happens. Even on the merchant’s part, there is a risk involved because their account information is included in this package. With mutual risk an understood part of the equation, merchants should do their research into payment gateways. Next, we will look at what a merchant should look for in a payment gateway.
Important Things To Consider In a Payment Gateway Provider
Because there is an element of trust that a merchant must have with their payment gateway provider, it can be a stressful decision for small business owners. However, it does not have to be as stressful as one may think. Small businesses can find the right payment gateway provider for their specific needs by considering several factors.
Security
Unsurprisingly, the security of which payment gateway provider a small business should choose is at the top of this list. Since this is the purpose of payment gateways, any provider being considered should be secured with point-to-point encryption. This is industry standard, but if it is not plainly stated, merchants should consider other options.
Fraud protection policies should also be looked into to ensure that there is accountability between the merchant and the provider for the sake of all parties, the consumer included.
Cost and Contract
Also, unsurprisingly, the cost of these services should be taken into consideration. Some payment gateways are optimized for a larger corporation and thus have larger fees and scaled contracts.
It does not make any sense for a small business to use a payment gateway that is oversized for what they are trying to accomplish. In general, the gateways will be upfront about the scale of their operation and will price accordingly.
It is also generally advised to stay out of longer contracts that bind the merchant to the payment gateway, as needs and scale may change dramatically. However, long-term partners may arise after a bit of time, so it is not a hard-and-fast rule.
Payment Methods and Currencies
Many small merchants do not think about when choosing their payment gateway provider is what payment methods and currencies that provider can encrypt and process. With the rise of cryptocurrency in eCommerce, the ever-expanding world of international online trade, and the continued individualization of consumer needs, this may be one of the most important considerations.
Providers will be upfront about what currencies and forms of payment they accept, and it is possible to try to push them to integrate more options. However, having a working knowledge of what your consumers might use is not always possible at first, so using a payment gateway that will accept a wide range of payments is an easy way to ensure that a business does not drive away business before they even start.
Cryptocurrencies and international currency can constitute a large part of your online consumer base, so accommodating them with the right payment gateway is essential. In addition, since there are more complicating factors with these forms of payment, a professional, experienced payment gateway can ensure your consumers that you are safe and trustworthy with their payments. With helpful guides and blog posts, CoinPayments is a trusted provider of information on accepting cryptocurrencies in your online store.
Compatibility With Online Marketplace
This is a point mostly for merchants with an already set up online marketplace but goes for those setting up their marketplace. It is a good idea to check in with your online marketplace to ensure that the payment gateway you wish to use is compatible with that marketplace. While most should be able to be integrated, not all are. You can also check with the providers to see which platforms they have relationships with. It starts to get more difficult with international gateways and crypto payment gateways, although that is changing quickly. CoinPayments is already integrated with a large number of marketplace options!
Merchant Account and Payment Processor Integration
It is possible to have payment gateways that are integrated with a business’ merchant account. This usually makes things easier on the back end of the transaction by ensuring the account with the acquiring bank has some say in the information traveling securely. This allows for a little more ease, with the cost of a little less control for the business owner. For small businesses, this may be a good option to keep complications at a minimum.
In addition, gateways can also be integrated with the whole of the payment processor. Generally, this is the way gateways are (with some notable exceptions). Since the processor is the virtual mailroom throwing the information from one party to the next, it makes sense to have the mailroom equipped with the security force of a payment gateway, though this is not always the case.
Third-party gateways offer the most control for the business owner and sometimes are the more effective option. It is important to research which of these options best suits your business now because, going forward, contracts could be part of the equation.
Customer Support
Like with any service, you are looking at the options for customer support to decide which option to go with. Because of the delicate information that you are entrusting to your payment gateway provider, finding one that has excellent customer support is essential. Even as a business, you will be their customer and should be treated with the same respect as you give your own customers. This is a fair and necessary expectation, so look for providers with the same commitment to that as your business does.
In conclusion, payment gateways are one of the many pieces of starting a business online. This article has shown the process and what to watch out for when choosing a payment gateway provider. With this information, you should be well set to find the right fit for you and your business going forward, even in uncertain times.
Sources:
• US retail e-commerce sales share 2021
• US payment card fraud losses by type
Cryptocurrency in Ecommerce: What You Need to Know | Shopify Agency
