What Makes a Good Online Payment Gateway for Ecommerce?

An e-commerce payment gateway is a crucial but often overlooked component of any online sales platform that acts as a virtual point-of-sale terminal for online businesses. It securely transmits and authorizes payment information between the customer, the online store, and the payment processor. Think of it as the digital equivalent of a physical card reader at a point of sale in brick-and-mortar store.

Payment gateways serve as an all-in-one platform for handling everything that needs to be done to safely conclude an online transaction. This includes creating a secure environment for the sharing of financial information, authenticating customer payment details, gaining authorization from the relevant financial institutions and facilitating the flow of information necessary to make it all happen.

Payment gateways make smooth credit card processing possible, which in turn makes e-commerce work. They make the payment experience for online shoppers something that can be trusted, which keeps us all coming back.

If you're selling products or services online, it's time to recognize just how important your e-commerce payment gateway is!

Why Your Payment Gateway Matters

Without a payment gateway, online stores would have to handle sensitive customer payment data directly, which is a significant security risk and requires strict Payment Card Industry Data Security Standard (PCI DSS) compliance.

Payment gateways simplify this process and provide a secure and reliable way to accept online payments.

The payment gateway you choose is not just a background function — it directly affects customer experience, trust and business performance. Here are some reasons why your choice of payment gateway is critical:

• Customer Trust and Security: Customers are more likely to complete a purchase when they feel their financial data is safe.
• User Experience and Checkout Speed: A good payment gateway offers fast, frictionless transactions that don’t redirect users to third-party sites unnecessarily, unless required. Poor UX can lead to lost sales.
• Global Reach and Multi-Currency Support: A gateway that supports various currencies allows you to cater to a global customer base without friction.
• Integration with Platforms and Tools: Your payment gateway should integrate smoothly with your e-commerce platform and other tools like CRM systems and inventory management solutions.
• Transaction Costs and Profit Margins: Fees can add up quickly. The right gateway balances affordability with features to maintain your profit margins while offering top-tier service.
• Chargeback and Dispute Management: Disputes and chargebacks can be costly and time-consuming. An effective payment gateway provides tools to manage and respond to these issues efficiently.

See how many aspects of ecommerce sites are tied to payment gateways? From handling customer information to accepting all major credit cards to keeping every shopping cart moving forward and more, your payment gateway acts in many ways that can have a direct impact on your bottom line.

What Does an Ecommerce Payment Gateway Do?

A payment gateway provider acts as the intermediary between your customers and your bank, securely processing transactions and ensuring funds are transferred efficiently.

A secure payment gateway like Stripe, PayPal or Authorize.net plays an important role in every key aspect of how payment processing is handled in the checkout process:

• Secure Data Transfer: When a shopper enters their payment details (credit card information, etc.) on a website checkout page, the payment gateway encrypts this sensitive data. This encryption ensures that the information is protected as it travels over the internet, safeguarding it from potential hackers.  

• Authorization Request: The encrypted payment information is then securely transmitted to the target payment processing system. The payment processor acts as a liaison, forwarding the transaction details to the buyer's bank or card network for authorization.  

• Verification and Response: The bank verifies the transaction, checks for sufficient funds, and assesses for potential fraud. It then sends an approval or decline response back to the payment processor, which is relayed back to the payment gateway.  

• Transaction Completion: The payment gateway receives this response and communicates it to the online store. If the transaction is approved, the store can proceed with fulfilling the order. If declined, the customer is usually notified to try another payment method.  

• Facilitates Fund Transfer: While the gateway itself doesn't handle the money, it initiates the process that eventually leads to the transfer of funds from the customer's account to the merchant's account.

Without a payment gateway, online stores would have to handle sensitive customer payment data directly, which is a significant security risk and requires strict Payment Card Industry Data Security Standard (PCI DSS) compliance. Payment gateways simplify this process and provide a secure and reliable way for an online retailer to accept online payments.

How Do Payment Gateways Work?

Here's a breakdown of the steps that online payment gateways go through to securely handle online transactions:

1. Customer Initiates Payment: The customer proceeds to checkout on the ecommerce website or app and selects from among various payment methods (e.g., credit card, debit card, digital wallet). They enter their payment details on the secure checkout page provided by the merchant or the payment gateway.
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2. Data Encryption: The payment gateway encrypts the sensitive payment information entered by the customer. This is a crucial security measure that transforms the data into an unreadable format, protecting it from unauthorized access during transmission.
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3. Transaction Request to Payment Processor: The payment gateway forwards the encrypted transaction data from the merchant's website (via the payment gateway) to the payment processor. The payment processor is a third-party company that handles the technical aspects of the transaction.  
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4. Authorization Request to Buyer's Bank: The payment processor forwards the transaction details to the customer's bank or card network (e.g., Visa, Mastercard, American Express) for authorization. This request includes details like the transaction amount and the customer's account information.  
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5. Verification and Fraud Checks: The relevant bank verifies the transaction. This involves checking if the account has sufficient funds, if the card is valid and if there are any red flags for potential fraud. The bank may use special fraud-detection algorithms during this stage.  
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6. Authorization Response: The bank sends an approval or decline response back to the payment processor. This response includes a status code indicating whether the transaction was successful or not, and if declined, the reason for the decline.  
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7. Response to Payment Gateway and Merchant: The payment processor relays the authorization response back to the payment gateway. The payment gateway then communicates this response to the e-commerce platform.  
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8. Transaction Result Display: The e-commerce website displays the transaction result to the customer, informing them whether their payment was successful or if there was an issue. If approved, the merchant can proceed with fulfilling the order.
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9. Settlement of Funds: Once the transaction is authorized, the payment gateway initiates the settlement process. This involves the movement of funds from the customer's bank account to the merchant account related to the sale.

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How a Secure Payment Gateway Protects Data

The best online payment solutions include a range of measures that ensure that data is protected and online shopping is a safe and satisfying experience for all.

Here are the most common tools that make it possible for retailers to securely accept credit card payments.

• Encryption: As mentioned earlier, this protects sensitive data during transmission.
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• Tokenization: The payment gateway replaces sensitive card details with unique, random codes (tokens). These tokens can be used for future transactions without exposing the actual card information, enhancing security and simplifying PCI DSS compliance for merchants.
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• PCI DSS Compliance: Payment gateways adhere to the Payment Card Industry Data Security Standard (PCI DSS), a set of security standards designed to ensure that all companies that process, store, or transmit credit card information maintain a secure environment.  

• Fraud Detection Tools: Many payment gateways incorporate fraud detection systems that analyze transaction patterns, identify suspicious activities, and help prevent fraudulent transactions.  

• Address Verification Service (AVS): This service checks if the billing address provided by the customer matches the address on file with the credit card issuer.  

• CVV/CVC Verification: Requiring the card verification value (CVV) or card verification code (CVC) helps ensure that the customer has physical possession of the card.  

• 3D Secure: This adds an extra layer of security by requiring the customer to authenticate the transaction with their card issuer, often through a password or a one-time code.

How to Choose the Right Payment Processor for your Ecommerce

As with any other digital tool, you have choices when it comes to the service that will help you accept payments online. Choosing a payment gateway for your business starts with knowing what to look for when comparing them and understanding how they address your business's needs.

Here are the most important factors to consider when deciding between the different providers that can help you securely process credit card payments:

• Integration with Your Ecommerce Platform: Ensure that the payment gateway seamlessly integrates with your chosen ecommerce platform. Most platforms offer built-in integrations or plugins for common gateways. This simplifies setup, reduces technical complexities and ensures data flows correctly between your store and the payment gateway.
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• Payment Methods Supported: Consider your target audience and the payment methods they prefer. Do you primarily serve customers who rely on credit cards or do you have a customer base that expects digital wallets or local payment options? Ensure the gateway supports the payment methods relevant to your customers.
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• Security Features Offered: Security is paramount in online transactions. See the list above for the specific tools that create a safe environment to accept payments from customers.
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• Transaction Fees and Pricing Structure: Payment gateways charge fixed transaction fees or a percentage of the transaction amount. Some may also have monthly fees, setup fees or fees for specific features like chargeback handling or international transactions. Compare different gateways based on their fee models and consider any hidden costs.
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• User Experience and Checkout Flow: The payment gateway should provide a smooth and intuitive checkout experience for your customers. Look for features like mobile optimization, clear error messaging, and the ability to save payment information for future purchases (with customer consent). A streamlined checkout process minimizes friction and encourages completion of the sale. Consider whether the gateway offers on-site checkout (where customers complete the payment within your website) or redirects them to a third-party page. On-site checkout generally offers a more seamless experience.
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• Fraud Prevention Tools: Robust fraud prevention measures are essential to protect your business from fraudulent transactions and chargebacks. Evaluate the gateway's fraud detection capabilities, such as risk scoring, address verification service (AVS), and card verification value (CVV) checks. Some gateways offer more advanced fraud management tools and allow you to customize fraud rules.
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• Customer Support and Documentation: In case of technical issues or questions, reliable customer support is crucial. Check the gateway's support channels (e.g., phone, email, live chat), their availability, and the quality of their documentation. A responsive and helpful support team can quickly resolve any problems and minimize disruption to your business.
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• International Capabilities and Currency Support: If you sell or plan to sell internationally, ensure the payment gateway supports multiple currencies and international payment methods. Consider the fees associated with international transactions and currency conversion rates. A gateway with robust international capabilities can help you expand your global reach.
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• Reporting and Analytics: A good payment gateway should provide comprehensive reporting and analytics dashboards that allow you to track transaction data, identify trends, and monitor performance. These insights can be valuable for understanding your sales patterns, managing cash flow, and identifying potential issues.
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• Scalability: As your business grows, your payment processing needs will increase. Choose a gateway that can handle higher transaction volumes and offer features that support your future growth, such as subscription billing or marketplace functionality.

A Comparison of Well-Known Payment Gateways

There are lots of choices when it comes to payment gateways but, as in other fields, a handful of names dominate. Here's a look at the advantages and disadvantages of handling digital payments using three of the most recognized ecommerce payment gateways.

[fs-toc-omit]Stripe

Advantages:

• Developer-Friendly and Highly Customizable: Offers robust APIs and extensive documentation, allowing for highly customized and seamless integration directly into a website or app without redirection. Maximum control over the user experience.
• Competitive and Transparent Pricing: Generally offers competitive and often more transparent pricing structures compared to others, with various plans to suit different business needs.
• Advanced Features and Tools: Provides a wide array of powerful features, including advanced fraud detection (Stripe Radar), recurring billing (Stripe Billing), and tools for managing subscriptions, marketplaces and more.
• Global Reach: Supports payments in numerous currencies and offers tools for international expansion.
• Strong Security: Complies with high security standards and offers features like Stripe Connect for secure marketplace payments.
• Excellent Performance and Reliability: Known for its stable and reliable platform.
• Scalability: Designed to handle businesses of all sizes, from startups to large enterprises.

Disadvantages:

• More Technical Integration: May requires more technical expertise for initial setup and customization compared to simpler options like PayPal.
• Less Brand Recognition with Consumers: While well-known among businesses, it might not have the same level of direct brand recognition with all consumers as PayPal. However, the seamless integration often makes this a non-issue for the end-user.

[fs-toc-omit]PayPal

Advantages:

• High Brand Recognition and Trust: Widely recognized and trusted by consumers globally, potentially increasing customer confidence.
• Large User Base: Millions of active users already have PayPal accounts, simplifying checkout for them.
• Versatile Payment Options: Supports various funding sources, including bank accounts, credit/debit cards, and PayPal Credit.
• Buyer Protection: Offers buyer protection policies that can reassure customers.
• Easy Integration: Relatively straightforward to integrate into e-commerce platforms.

Disadvantages:

• Redirection Required: Often redirects users away from the merchant's website to PayPal's site for payment, which can disrupt the checkout flow.
• Potentially Higher Fees: Transaction fees can be higher compared to other processors, especially for lower-volume businesses or international transactions.
• Seller Disputes: Can be challenging for merchants to resolve disputes.
• Brand Perception: Some users might have negative perceptions or past experiences with PayPal.

[fs-toc-omit]Authorize.net

Advantages:

• Trusted and Established: Backed by Visa, Authorize.Net is a long-standing, widely used payment gateway known for reliability and security.
• Versatile Payment Options: Supports major credit cards, eChecks, Apple Pay, PayPal, and recurring billing, making it suitable for many business models.
• Advanced Fraud Protection: Includes a free Advanced Fraud Detection Suite with customizable filters to help block suspicious activity.
• 24/7 Customer Support: Offers round-the-clock support via phone, chat, and online ticketing.
• Transparent Pricing: No contracts or early termination fees, with clear, upfront pricing.
• Virtual Terminal: Enables merchants to accept payments over the phone or in person using a virtual terminal.

Disadvantages:

• Monthly Fees: Charges a monthly gateway fee, which can be a drawback for small or low-volume businesses.
• Outdated User Interface: The admin dashboard is often described as cluttered and less intuitive compared to competitors.
• Complex Setup: Initial account setup can be time-consuming and may require technical expertise, especially for online integrations.
• Limited Integrations: Not as robust or flexible as some modern gateways, with fewer one-click integrations and add-ons.
• Mixed Customer Support Reviews: Some users report challenges with customer support responsiveness and effectiveness.

Which Payment Gateway Should You Choose?

Now that you’ve read this article, you know exactly how to verify a payment gateway and what to look for when choosing one for your online store. If we had to pick just one provider, our clear choice would be Stripe.

Sure, PayPal is widely recognized, and Authorize.net has been there forever – but Stripe stands out as the safest and most flexible payment solution out there. It supports all major payment methods, from digital wallets and Klarna to local options like Polish BLIK. You can sell globally in 130+ currencies (comparing to 25+ currencies on PayPal) – and do it all with lower fees.

That’s exactly why we built Easycart on Stripe and made it the backbone of our checkout system. On top of that, we’ve added a bunch of smart features designed specifically for creators selling digital products.

If you already have a Stripe account, you can set up your first cart in just minutes. Learn more and try it FREE.

Time for a Payment Gateway Checkup?

Payment gateways often don't get the attention they deserve. However, they are a critical tool for anyone who needs to process payments online.

If you're in the process of setting up an online business, keep the points above in mind when making your choice. If you're already up and running, it might be time to go back and see if an alternative payment gateway might better serve your needs.

Either way, remember how much you rely on them to protect your customers and help you process the payments they make!