What is a payment gateway? How do I choose the best payment gateway for my business?

According to Digital 2024’s data on internet users and social media, 80% of Hong Kong credit card users have used electronic payments in the past year. With electronic payments becoming mainstream, a payment gateway for receiving payments is even more crucial for merchants. This article delves into the operation, types, advantages, and more of payment gateways to help you choose the solution that best fits your needs.

What is a payment gateway？

A payment gateway is a technical platform, equivalent to a third-party payment system. The gateway enables businesses to accept customer payments both online and offline. While point-of-sale (PoS) terminals in physical stores also function as payment gateways, the term typically refers to online payment gateways. These gateways allow merchants to accept payments via credit cards, debit cards, or other electronic payments.

How does payment gateway work？

A payment gateway serves as the interface through which customers input payment information, typically supporting credit cards and e-wallets. Once a customer's payment details are transmitted to the payment processor, they are forwarded to banks and card networks for completing the fund transfer. Messages regarding the success or failure of the transaction are relayed back to both the customer and the merchant through the payment gateway. In the event of a successful transaction, the merchant processes the order, while in times of ‌failure, the customer may attempt alternative payment methods.

Additional services provided by payment gateways

• Data encryption: Protect customer data during transactions.

• Tokenisation: Substitute sensitive information with tokens for future transactions.

• Fraud prevention: Include safety measures to detect and prevent fraudulent attacks and activities.

• Data collection: Allows merchants to analyse transaction data.

Types of payment gateways

1. Self-hosted payment gateway: Hosted on the merchant’s server, providing a seamless customer experience but requiring compliance with CPI standards.

2. Redirect payment gateway: Redirect customers to the payment service provider’s page for payment, making it simpler for eCommerce businesses but adds an extra step for customers.

3. Payment Gateway API: Allows integration while maintaining design control.  More suitable for businesses with related technical capabilities.

Is payment gateway the same as payment processor or payment provider?

Payment gateway is not the same as a payment processor or payment provider. They each have unique roles:

• Payment Gateway: Responsible for collecting, encrypting, and transmitting customer information.  

• Payment Processor: Receives customer information and sends it to financial institutions and payment card networks.

• Payment Provider: Refers to companies that offer payment services.

Service providers like Airwallex offer all-in-one solutions that integrate payment gateway, processor, and acquirer functions. These services can be accessed individually or in combination, along with additional features like invoicing, accounting software integration, and detailed analytics. This assists eCommerce businesses in effectively managing their operations with enhanced flexibility and convenience.

What businesses use payment gateways?

Online stores and subscription-based businesses commonly rely on payment gateways for handling recurring payments efficiently.

Small online stores with limited technical resources often opt for off-the-shelf solutions from platforms like WooCommerce and Shopify. Larger enterprises employ integrated payment gateways to streamline transactions, automate fund allocation, transfer balances to merchant accounts net of fees, and enable multi-currency support for reducing foreign exchange transaction costs. 

Advantages of using a payment gateway:

• Convenient for customers: Merchants can offer local payment options, eliminating conversion barriers, and enhancing customer loyalty.

• Enhanced security: Encryption and fraud detection ensures customer information is protected and reduces fraud risks.

• Support efficiency and growth: Automating transaction authorization and settlement, supporting multiple currencies and local payment methods to meet international demands.

• Insight from data: Offering reporting and analytics tools to help businesses optimise strategies and maximise revenue.

Disadvantages of using a payment gateway:

• High costs eroding profits: Transaction fees and chargebacks may impact the profitability of low-margin or high-volume businesses.

• Complex and time-consuming integration: Setting up is time-consuming and costly, often requiring technical support.

• Keeping up with security and compliance requirements: Choosing a reliable provider is essential for complying with industry standards

• Lack of control over the checkout process: Gateway interruptions can affect the checkout process, so it is important to choose a reliable provider.

How much do payment gateways cost?

The cost of payment gateways typically include setup fees, monthly or annual fixed charges, and transaction fees, with the latter usually being a small percentage or fixed amount per transaction. Additional administrative fees may also apply. If your business has relatively low transaction volumes, it is advisable to consider a gateway with lower setup costs.

Three Examples of popular payment gateways

How to choose an eCommerce platform and payment gateway?

When considering opening an online store and selecting an eCommerce platform and payment gateway, it's essential to take the following factors into account:

• Seamless integration: Ensure smooth integration between the platform and the payment gateway to enhance the checkout experience for customers.

• Transaction speed: Speedy transaction is crucial for customer satisfaction and conversion rates.

• Variety of payment methods: Support multiple payment methods to meet the diverse needs of customers.

• Fees and pricing structure: Compare transaction fees and other charges to choose the most cost-effective solution.

• Security: Select a payment gateway that complies with industry standards to protect customers' payment details.

• Value-added services: Services like data analytics and customer support to optimise business operations.

Why choose Airwallex as a payment gateway provider?

1. Competitive pricing and seamless integration: Airwallex offers competitive pricing and seamless integration with tools like Shopify and WooCommerce, streamlining the payment process for eCommerce businesses.

2. Global coverage and local payment methods: Airwallex supports over 160 payment methods in 180+ countries and regions with different currencies. It supports popular card networks and regional payment options, which helps to increase conversion rates.

3. Reduced chargebacks and increased acceptance rates: Built-in fraud detection and dispute management features automatically identify suspicious transactions, reducing chargeback rates. The machine-learning-driven 3D Secure engine enhances transaction acceptance rates by automatically selecting the best strategy based on risk.

4. Flexible integration options: Airwallex is easy to use and can be used by anyone, no matter their technical skills. It can be easily integrated into your website or customised further through APIs and mobile SDKs.

Frequently asked questions

Which is the best payment gateway?

Choosing the best payment gateway depends on factors such as cost, ease of use, security, customization, scalability, global coverage, and customer support. Airwallex globally with transparent pricing and low FX rates, while PayPal remains widely used, offering a reliable user interface at a higher cost.

Do I need a payment gateway?

Yes. eCommerce businesses often rely on payment gateways to facilitate secure processing of customer payments during online transactions. Payment gateways serve as an intermediary between merchant's online stores and financial institutions, and allows for integration with platforms like Shopify. Opting for a standalone payment gateway can better cater to specific business needs.