What are Payment Gateways?
A payment gateway is a software program that keeps customer data, transaction details, and other critical information secure during a transaction. Payment gateways are involved in processing each type of cashless transaction, including credit, mobile, debit, or digital wallet, and more.
Why Does Your Business Need a Payment Gateway
There is hardly a business nowadays in the UK that accepts only cash payments. So everyone who runs a business, startup, SME, or large business, needs a payment gateway to securely process cashless transactions. Businesses with online shops, brick-and-mortar stores, and physical store-fronts, all need a payment gateway.
So here’s the bottom line, payment gateways are used by both, physical stores (for processing credit/ debit/ digital transactions) and online stores (for processing online payments.)
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Types of Payment Gateways
1. Hosted payment gateway
A hosted payment gateway is when a business website sends customers to the payment gateway’s website to input transaction data and process online payments.
How it works:
- When a customer decides to purchase a product from a website, the hosted payment gateway will redirect the customer to an external link (the website of the payment gateway).
- The customer will then enter their payment details to complete the purchase.
- After the purchase is completed, they will be redirected back to the business’s website.
- The payment gateway directly handles the security aspects of the critical information because all the payment information is stored on its website.
| Pros | Cons |
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Easy to set up on the business’s website.
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Businesses do not get full control over the user experience during the payment process. |
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Does not require technical knowledge to integrate and maintain. |
Customers are directed away from your website which can cause delays. |
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Businesses don’t have to worry about security concerns. |
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Ideal for small businesses. |
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Provides high security with PCI DSS compliance, anti-theft tools, fraud-detection programs, and more. |
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2. Self-hosted payment gateway
As the name suggests, a self-hosted payment gateway allows your customers to proceed with the payment directly on your website. Unlike a hosted payment gateway, where the payment gateway’s website collects the cardholder’s information, a self-hosted payment gateway doesn’t redirect the customers to another website. The checkout process is completed in one place i.e. the business’s own website.
How it works:
- When a customer decides to purchase a product, they enter the cardholder details on your website’s checkout page.
- These details are then sent to the payment gateway for authorisation.
- To securely send the sensitive cardholder information of their customers, businesses encrypt the data.
- Since the business’s website is collecting the data directly, it has to comply with PCI DSS guidelines according to the industry standard.
| Pros | Cons |
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Faster checkout process, since there is no redirection involved. |
Requires technical expertise to set up. |
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Full control over the user experience during checkout. |
The business is responsible for complying with PCI DSS guidelines and providing security. |
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The business can customize the design of the checkout page. |
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3. API-hosted payment gateway
Suppose you want complete control over your website’s checkout experience and design but can’t manage the security details. In that case, you should go for an API-hosted payment gateway.
This type of gateway provides an application programming interface (API) that can be integrated into your website. Through this API, your customers will enter their payment details directly on your website, but the security and compliance aspects will be managed by the payment gateway.
How it works:
- When a customer decides to purchase a product, they enter their cardholder details on your website’s checkout page.
- This checkout page is integrated with the API, which securely sends the payment details to the payment gateway for authorization.
- Since the payment gateway is directly collecting the data, it must comply with PCI DSS guidelines according to industry standards.
- The business is responsible for paying for the SSL certificate and PCI DSS compliance, but this spares them the responsibility of managing the security aspects of the payment directly.
| Pros | Cons |
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No redirection is involved, providing a faster checkout experience for users. |
Technical expertise is required to integrate and maintain the interface. |
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Full control over the user experience. |
Costs extra for SSL certificate and PCI DSS compliance. |
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The design of the checkout page is fully customizable. |
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Knowledge about security compliance is not needed since it is handled by the payment |
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4. Local bank integration gateway
This type of payment gateway is just as understood by the name. Through this payment gateway, a business connects directly with a bank’s payment processing system. Now, the execution of a local bank integration payment gateway is dependent on the bank itself.
Depending on the services provided by the bank, the customers are either redirected from the business’s website to the bank’s website or the payment gateway is integrated into the business’s website.
Features like repayment, returns, refunds, and canceling payments are all dependent on the technology level of the bank and the support it provides for the businesses.
How it works:
- When a customer decides to purchase a product from a website, the local bank-integrated payment gateway will redirect its customers to the bank’s website to complete the payment.
- If redirection is not the case, then it is most possible that the gateway is integrated into the business’s website.
- Customer will then enter their payment details to complete the purchase.
- After the purchase is completed, they will be redirected back to the business’s website.
| Pros | Cons |
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Suitable for small or location-centered businesses. |
Checkout process is fully dependent on the services provided by the bank. |
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Lower costs as compared to global payment gateways. |
Not suitable for businesses that want to scale in the future. |
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Fast and simple to integrate. |
Limited features and flexibility. |
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Provides basic features. |
5 Things to Consider Before Choosing a Payment Gateway
You should consider these 5 factors before deciding on the type of payment gateway.
Business volume
Your business volume is the first thing you should consider before choosing a payment gateway.
- If you just got started with your business and want to focus on your local client base, then a bank-integrated payment gateway is suitable for you. It allows you to focus on a limited number of clients at a time with a basic feature set.
- If you are a small business with limited resources, then a hosted gateway is the best option for you. You don’t have to worry about security compliance, checkout design, or user experience and you can focus on growing your business.
- If you are a medium-sized business then an API-hosted payment gateway is the solution for you. You get control of your website checkout design, user experience, and payment processing with the payment gateway taking care of most of the security details for you.
- If you are an established business with a large client base, it is obvious that you want to provide them with a premium user experience. In that case, a self-hosted payment gateway is best since everything is under your control. Everything can be customized and matched to your needs.
Local or global business
While you evaluate your business volume, you should also consider your business target audience. Not all small businesses focus on just local clients and not all established businesses aim to grow globally.
If you want to scale your business, then choose a payment gateway that grows with you like an API or hosted payment gateway, since managing a self-hosted payment gateway can be a bit of a stretch from the start. Choosing a bank-integrated payment gateway will not work for such a business.
Consider security compliance
The core function of any payment gateway is, of course, the security it provides for transactions. Choose a payment gateway that has PCI DSS compliance. When a company is PCI DSS compliant, it means it is reliable and safe to trust.
If your team lacks the technical expertise to manage payment data on your own, then a hosted or API payment gateway is a better option.
Technical support provided
When choosing a payment gateway, consider the level of technical support provided. For instance, with a bank-integrated payment gateway, the extent of support depends entirely on the bank you are working with. Similarly, a self-hosted payment gateway offers minimal technical support, as you are responsible for managing and maintaining the system.
However, hosted and API-integrated payment gateways typically provide comprehensive technical support. Since these gateways handle the payment data and security, they offer full backup support to assist with any issues that may arise.
Integration
Last but not least, a feature to look for is the ability to integrate with your existing system. If you have an online shop, POS systems in physical stores, or any other e-commerce platform, a payment gateway should be easily compatible with your system.
Also, make sure that the payment gateway supports multiple payment methods like credit, debit, and digital.
Looking For Top Payment Gateway Options in the UK?
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