A Guide to Choosing a Payment Gateway08 January 2015
Fast, secure and ease of payment processes enable a smooth online customer experience – one that is likely to drive retention and customer growth. Payments are essentially the lifeblood of an eCommerce business and the choice of the right payment gateway is critical to the success of your online store. As there are numerous payment gateway options available, this article addresses the key areas to consider when deciding which payment gateway to adopt.
What is a payment gateway?
A payment gateway is the system and infrastructure that facilitates the payments from your eCommerce store. It processes the transactions from a website, thus enabling merchants to accept and manage payments and mitigate fraud in a secure way. In simple terms, think of them as the cash register for your online business. When looking into payment gateways, one will frequently come across the term “Merchant accounts”. A merchant account is a specific kind of bank account for receiving payments from credit and debit cards. The merchant account sits separately from your normal account, as this is where the bank holds the funds from debit and credit cards for a certain period of time. Your bank will then batch process the payments on a regular basis, with most banks doing so daily. Do keep in mind that financial institutions usually charge merchant accounts fees for set up, transactions and account keeping.
Merchant accounts come in two options – dedicated accounts that are provisioned specifically for your business and aggregated accounts (such as those provided by PayPal) that use a single merchant account to provide credit card processing for an entire portfolio of companies. The differences between these two options come down to three key points:
- Management – Dedicated accounts provide better control over your funds as you liaise directly with the bank regarding queries, processing and errors. On the other hand, aggregator accounts involve an additional step, where aggregators act as middlemen.
- Speed – Setting up a dedicated account requires extensive checks on credit-worthiness which takes more time to be approved. Aggregator accounts can be set up as soon as within an hour.
- Control – As its name says, a dedicated account is specifically set up for your business so you have maximum visibility on transactions and processes. Aggregated accounts, on the other hand, are a collation of businesses. This reduces visibility of all ongoing behavior in your aggregated account.
In short, if you are a middle to large eCommerce business, it is recommended to go through the process for a dedicated merchant account from your bank – the initial upfront costs and time spent setting up such an account will reap greater benefits in the mid to long term.
What do I need to consider for my payment gateway?
Every business is different. Some operate purely online; others have physical stores and offer an omni-channel shopping experience to their customer. Some businesses have a small number of transactions per month, whilst others have thousands of transactions. It is therefore important for every business to understand the requirements for their operations and then assess the variety of payment gateways and understand their features relevant for your organization.
There are eight main factors to take into account when considering a payment gateway:
1. Payment Types
There are a number of payment types that are now commonplace and that gateways process. The traditional key entry credit card or scheme debit card purchases are still the most prevalent, however other options are now becoming popular.
These include the likes of PayPal and AliPay where only the entry of a password is required to complete the transaction rather than the entry of billing, shipping and card details. Only the leading gateways provide these payment types as part of their solution. You can however integrate to them directly but at additional integration time and cost. Either way you do need to register a merchant account with them. It is recommended that you offer such payment methods because you need to cater for consumer’s preferred way to pay.
Online retailing crosses geographic boundaries and opens your business to international consumers from a range of countries. Within the Asia Pacific market this is of particular importance with its high cross border rates. If you are willing to ship to such markets you need to ensure that you can process transactions from such markets. Ensure that the gateway can process the currencies you want to accept and that it can connect to merchant banks where you want to set up a website locally. It is also worth considering if the gateway can provide Dynamic Currency Conversion (DCC) whereby consumers can choose their preferred currency when paying.
3. Hosting/On-form Payments
A payment gateway can either be hosted or non-hosted:
- A hosted gateway will redirect your customer away from your eCommerce website at the payment stage. Once the customer has paid, they will be redirected back to your store. These are easier to set up and integrate with; however, it offers a lower customer experience as it disrupts the shopping experience. Customers are often concerned when they are directed to these 3rd party hosted solutions and could lower your sales volumes.
- A non-hosted gateway keeps your customers on your website to pay directly within your site with no redirection.
If you choose to implement a hosted solution it is recommended that you look for a payment gateway that allows you customize the look and feel of the 3rd party page as to retain the customer’s shopping experience and a continuation of trust.
This is more than likely one of the highest priorities on any business’s list. There are several fees that you need to consider when choosing a payment gateway as they vary from vendor to vendor:
- Set-up – there is often an initial set-up cost that will cover setting up the integration and approval to your merchant account.
- On-going – there are a number of variations regarding how the payment gateway vendors charge:
- Merchant Discount Rate – a small percentage charged for each transaction. It is typically between 2-5% and varies upon the number of monthly transactions your store processes.
- Flat transaction fee – a set transaction fee irrelevant of scale.
- Security and Support – a fee to provide technical support services and increased fraud detection.
- Other fees – some gateways charge for refunds and / or charge for chargeback fees. A chargeback occurs when a customer disputes a transaction and the merchant must refund the value of the goods/service.
Unfortunately, online fraud is a growing issue that all eCommerce businesses suffer from. Fraudulent activity can be a significant cost and can also damage the brand and reputation of your business, so choosing a payment gateway that provides maximum security at a potentially higher cost can save your business money in the long run. All gateways should include data encryption; a second layer is recommended so look for vendors that offer CVV2 verification and 3D Secure (mandated in many countries including Singapore). Some offer even greater security, such as more-complex encryption algorithms, fraud monitoring systems and restrictions on data that is sent and stored. A business can either install an end-to-end encryption system or outsource the payment process to a provider that tokenizes sensitive data externally. Token technology takes sensitive information including credit card numbers or AVV and CVV2 information and replaces it with a custom token which is non-descriptive.
6. Reliability, Scalability and Uptime
The payment process is crucial to your eCommerce business’ success. Your payment gateway provider should have proven reliability and availability in high-volume implementations to ensure constant uptime even in peak seasons and other high-traffic periods.
7. Pay-out Policy
With any payment gateway the money takes time to reach your account because the funds need to be cleared by the issuing and acquiring bank. To avoid doing a transfer each time a purchase is made, payment gateways will have a payout frequency which can be daily or even monthly. If your business is prone to cancellations or refunds it would be advised to select a weekly pay-out as it is easier to issue in-app refunds if they have not yet been transferred to your bank account.
With any vendor engagement, it is important to always look at the type of support that is being offered. With regards to payment gateways, this is of vital importance to your business as issues could halt your ability to process sales. Customer support can vary widely ranging from 24/7 immediate phone support up to a days delay via email.
Payment Gateway Systems Across APAC
With hundreds of payment gateways currently in the APAC region, it is difficult to choose the correct solution. As discussed, many companies provide integrations to standard e-commerce platforms.
- Adyen – Adyen is a global multichannel payment company offering businesses an outsourced payment solution, which enables merchants to accept payments from anywhere in the world and provides a global payments. Adyen offer over 250 payment methods.
- Cybersource – Owned by Visa it enables merchants to accept and manage payments, mitigate fraud, and secure their payment data with full coverage across Asia Pacific. Cybersource offer various solutions including Global Expansion Mobile & Cross-Channel Payments, Streamlining PCI Management and Optimizing Fraud Management.
- eWay – As one of the most popular Australian Payment gateways, eWay provides various options- from a hosted solution to links with other banks merchant accounts. eWay has over 16,000 customers and is integrated with most large scale ecommerce solutions.
- iPay88 – Pay88 is a leading Malaysian payment provider offering a large range of payment options for customers in Malaysia, Thailand, Philippines, New Zealand, Australia and China. Offering various integrations to Asian banks and also Alipay.
- Payflow and Braintree – both owned by PayPal globally and can be found in many countries worldwide.
- PayPal – The global payments platform that is available 203 markets allowing merchants to get paid in more than 100 currencies.
- Stripe – Stripe claims to be the easiest way to accept credit and debit card payments online. It offers a unique API solution for linking into their Payment Gateway and can accept payment from multiple devices and links with numerous e-commerce solutions.
- Wirecard – This platform mitigates the complexity of payment processing and makes online payment for merchants and consumers transparent and secure. Offering end-to-end services for airlines and travel operators, banks, telecom operators and service providers.
- WorldPay – WorldPay provides card processing services for your business from card machines, online payments to mail and telephone orders. Established in 1994, WorldPay is one of the first payment gateways, and offers a 3rd party landing page system for simple integration without development time.
The selection of a suitable payment gateway is integral to the success of your eCommerce store. There are a variety of vendors in the market today that offer a wide selection of solutions and integrations. When evaluating the options, it is recommended that you look at your estimated volume of monthly transactions, currency requirements, hosting considerations, desired user experience, the level of support required, as well as the available integrations for your chosen eCommerce platforms.
In Asia Pacific, online payments have had some challenges around consumers trusting the providers. This is particularly in Southeast Asia where low credit card, digital payments and bank penetration have been a challenge for the adoption and growth of eCommerce. This adoption and perception is changing but it is of greater importance in these markets to choose proven trusted payment gateways that cover the required payment types and offer the customers a trustworthy, easy to use platform for online payment processes.