If you have decided to sell online then it has likely occurred to you that you need a way to collect money for the products you are selling. (If you were hoping to accept cash for your online sales I have some bad news for you) This process isn’t difficult, however it is more detailed to establish than you may have assumed.
Before we get ahead of ourselves let’s establish some basics.
What is a Payment Gateway?
A payment gateway is the name for a system that securely collects your customer’s credit card information and facilitates the secure transmission of that information between your website and your payment processor.That sounds fairly straightforward, right?Well, it is a rather detailed and technical process involving encryption, secure data transfer between at least 3 different parties, and a litany of protocols that would be exceedingly boring for the average person to read about.
How is a Payment Gateway Different than a Merchant Account?
Your merchant account is primarily focused on the reconciliation and movement of money between the purchaser and the seller. When a merchant account receives a transaction request it contacts the customer’s bank that issued the credit card. The merchant account receives approval or denial of the transaction from the cardholder’s bank and sends that information back to the point-of-sale or payment gateway. When the transaction is confirmed the merchant account and issuing bank reconcile and facilitate the money movement between the two accounts. In this example the payment gateway acts as the secure channel to move information between the payment processor and your website. I have heard others compare a POS machine to a payment gateway. While this comparison is not perfect, it is conceptually close enough to help many people understand the concept.
If you already have a merchant account then you have an additional consideration when choosing a payment gateway. More on this topic shortly.
Do I Need a Payment Gateway And a Merchant Account?
No. Well, kind of, but not exactly. This question really can’t be answered with one word. Here is why; many payment gateway companies also act as the payment processor. However, your payment gateway does not need to be your payment processor. In the marketplace there exists payment gateways that will work with merchant accounts rather than completing the whole process themselves. So if you already have a merchant account your very first step is to get a list of payment gateway companies that are supported by your merchant account.
How do I find payment gateway providers?
There is certainly not a shortage of payment gateway providers. Wikipedia and others have lists of payment gateway companies. Now before you click on the Wikipedia link, there are several things to consider before you start shopping. Taken together all the considerations make up the value statement. The considerations fall into 2 categories: technical requirements or costs.
Security! Security? Security! Did I mention security?
Before we even consider anything else we have to talk about security. Nothing is more paramount to your long-term success than showing potential customers and customers alike that you are serious about protecting their sensitive data. Target and other retailers were in the news this past year for hackers breaching their customer’s credit card information. Target and others took it on the chin and lost out on sales for several months following news of the breach. While Target’s brand was strong enough to recover from this breach a smaller retailer may never recover.
Pay for security! Every payment gateway provider has to meet minimum criteria to be certified by Visa and others. This level of security should be considered a starting point, and nothing more. We can’t stress enough how important security is when considering payment gateway providers. Thoroughly investigate security with each potential provider.
Make sure to check withyour host to identify any payment gateway provider limitations. Certain hosts will only work with their predefined list of payment gateway providers.
If you already have selected a shopping cart vendor, check with that vendor for a list of payment gateways that are compatible with the shopping cart vendor’s technology. Similarly, if you pick a payment gateway first be mindful of compatibility when choosing your shopping cart vendor.
Hosted vs Non-Hosted
This is arguably one of the larger decisions that needs to be made. In a nut shell, do you want your customers to leave your website to process the payment or not? Does it matter you ask? Well, yes it does. Your website is your brand so maintaining your brand by having the customer stay on your site may be more important to you than saving the development costs of going the non-hosted route. Development costs? Yes. If you choose the hosted route you will have more development costs to build out your site so that you can successfullyhostthe payment gateway on your site. But, again, you control the look and feel of the pages this way. But before you let development costs sway your decision, talk to us. Let a web development expert give you real numbers for your project.
The way I see it: If you are planning on being a big retailer go the hosted route. If you believe that you will only be doing a handful of transactions or the product is more important than the brand, then the non-hosted route may make more sense.
Hopefully there is never an issue but when there, is because there will be, what kind of support do you need or want. Do you need 24 hour phone support? How about live chat? Email support? All of these are options that vary across payment gateway providers. You may find that the less you pay, the less you get, but that may be fine.
Most everyone I know has bought something from their mobile device. A question to ask potential payment gateway providers is how they support mobile device shopping. This form of browsing and shopping is only expected to become more prevalent in the coming years.
What countries are you selling in?
Certain payment gateway providers only processed transactions in certain currencies. Be mindful of this limitation when interviewing gateway providers. If all of your transactions are going to be in US dollars then you have more choices of payment gateway providers than someone who is doing business literally globally.
What type of products are you selling?
Some payment gateway providers only allow you to sell physical products. So if you are selling e-books or other digital content you need to examine potential gateway providers for restrictions on products. Similarly, only a handful of payment gateway providers allow you to sell ammunition or tobacco products. If you fall into either of these categories you have some serious considerations.
If you sell subscription services, perhaps a coffee of the month, then only certain payment gateway providers will work for you. To many retail businesses this may be a non-issue.
What cards are supported?
Most payment gateway providers accept the big three or four. If you would like to accept PayPal, AMEX, diners, or others you may need to dig a little deeper. Each of these cards has its own fee structure to consider as well.
What is it going to cost?
We have touched on several technical considerations, now let’s look at some of the costs you will incur. If you are as cost-conscious as many people I’ve worked with, then some of these costs may drive you crazy. So do your homework and find a provider whose cost structure you can live with.
Set up fees
Yes this is just what it sounds like. A fee the payment gateway provider charges to get you up and running with their system. Try negotiating this fee if you find a provider you like otherwise. With today’s economy every fee may be negotiable.
Fixed Transaction Costs
Certain payment gateway providers will charge a flat fee for up to a certain number of transactions per month. If you expect to have a very uniform sales pattern with an easily defined number of sales each month you may consider the fixed route. I know a woman who custom designs scarves and has a backlog of orders all the time. She knows that she can’t sell any more than 12 scarves per month and doesn’t accept payment until she ships the item. For her the fixed cost route is ideal.
Variable Transactional Costs
In lieu of paying a fixed monthly cost for certain number of transactions online vendors who sell varying amounts of product each month may choose a transaction-based fee structure. This type of fee structure assigns a cost to each transaction versus a set fee in a given month.
Certain payment gateway providers will charge both a fixed monthly cost as well as variable transaction costs. The thought here is that you pay a fixed monthly fee that in essence buys you lower transactional costs. Several people I’ve worked with see this type of fee structure and immediately react with “why would we do that?” Well the short answer is that sometimes it makes sense. Sometimes a set monthly fee with lower per transaction cost winds up being a much better deal based on the size and frequency of your transactions.
Monthly Service Fees
Certain payment gateway providers will charge a monthly fee that’s outside of transactional fees. Examine each provider’s fee structure carefully to make sure you understand what you’re being charged for.
Welcome to the world of online retailing. With all the items there are to consider as you look at selling online it’s good to know that there are people willing to help you through this process. Contact me and let us help guide you through this process.