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Payment Gateway Guide For UK Businesses (2021) ms payment logos

What is a payment gateway?

A payment gateway is software that securely captures card payment data from a customer and transfers it to the acquirer (aka merchant account) which results in an approval or disapproval decision being transferred back to the customer.

The cardholder’s bank only submits payments for settlement once they receive approval from the payment gateway.

You will have used a payment gateway every time you so a bit of online shopping. It is a critical middleman when taking card payments when the card holder is not present (CNP payments).

At a very high level, a payment gateway provides 3 main functions :

  • Card payment forms on websites and apps
  • Transaction encryption
  • Verification systems on the back end

Most merchant account providers offer their own payment gateway to their customers (and vice versa) but it is often a good idea to investigate whether it may be better to use different companies for your payment gateway and merchant account.

You can get a better user experience, higher conversion rates and lower transaction fees by splitting them (we can give you advice on this based on your business requirements).

How payment gateways work
image credit: Toptal

How to choose the best payment gateway provider for your business

There are various factors you need to consider when selecting a payment gateway.  

1. Compatibility 

If you are buying separately from you merchant account provider, you need to make sure you can integrate the two. Similarly, if you are using an eCommerce platform check the integrations possible. If not, then it’s failed a key requirement and you should cross it off your shortlist. 

2. Checkout experience and ability to customise UX  

What is the user experience for entering card details on desktop and mobile devices? 18% of online shoppers in abandoned an order in Q1 2021 due to a checkout process that was too long or complicated. 

Customer experience at checkout has a significant impact on your bottom line and a good payment gateway will allow you to improve this. 

3. Offering payment options your customer wants

Offering the payment options your customers want to use will reduce friction at the checkout screen and increase sales. This could include adding additional card types like Amex, additional payment methods like Apple Pay or  buy now and pay later functionality.  

4. Security & fraud prevention 

Does it have the level of PCI compliance your specific business requires? As a guide, here is how Visa decide on required PCI levels. Online payments have a reputation of more chargebacks and your gateway wil provider will affect how well fraud is prevented (and save you chargeback costs)

5. Speed of payment 

Some gateways are painfully slow to transfer funds so make sure you check how quickly you can expect to access your money once settled (it typically takes 3 days). 

6. Reporting & user interface

The user interfaces and reporting of some payment gateways are head a shoulders above others. They are not only intuitive and a joy to use but they can improve your decision making. 

7. International coverage 

If you are taking international orders it is obviously important to check about the ability to multiple currencies and card types. You should also confirm any additional fees incurred for international payments and if a merchant account in a specific country is required. 

Payment gateway costs

There are several types of cost associated with a payment gateway that can be split into:

  • Set up (one off fixed fee)
  • Transactions (added to each transaction by associated the merchant account provider)
  • Admin & security (fixed monthly fees)

You can see some examples of the fees charged in the payment gateways listed below. 

How is a payment gateway different from a merchant account?

A merchant account is a bank account which temporarily holds the funds from online or card payments before transferring them to your nominated business bank account. A payment gateway connects your merchant account and a customer’s bank enabling the funds to flow into the merchant account (and then onto your business bank account) once the payment is authenticated. 

In order to take online payments online you need a payment gateway and a merchant account but they are not the same (even though they could be provided by the same company under one contract). Some payment gateways come with merchant accounts bundled together as a package (Stripe, Braintree. PayPal, Adyen) whilst others offer standalone payment gateways (i.e. Cardstream). 

How is a payment gateway different from a payment service provider? 

You may hear payment gateways and payment service providers (PSPs) used interchangeably but they are different.

PSPs (aka merchant service providers, payment processors or ISOs) are companies that provide a range of services that help businesses accept payments whereas a gateway is software carrying out a specific service in the payment process. 

Many PSPs combine payment gateways and merchant accounts into one package and take a nice premium for the convenience of doing so (which is why it is often worth looking at getting your own payment gateway provider and a separate contract with a merchant account provider which can often lower transaction fees). 

Most payment processors will charge higher fees for online sales than face to face payments with additional risk associated with ‘card holder not present’ payments often being used as a reason. However, in most cases there should be no need to pay more for online card processing than in-person payments received via a POS terminal. 

Beware of trying to find the cheapest payment gateway

Of course price is important but you need to weigh up the fees against potential losses incurred by going down a more budget route. If a payment gateway’s lower costs are outweighed by the money you end up losing on expensive chargebacks it might not be worth that investment.  

A poor checkout experience due to a poor gateway will also cost you in lost sales so going for the cheapest is often a false economy.

Should you get an All-In-One solution (i.e. Gateway + Merchant Account from one provider)?

It depends. Sorry we can’t give a definitive answer but it really depends on your company and level of card turnover. Just know that you can shop around for payment gateways and have a merchant account from another company in order to secure better card processing rates (you integrate them with your merchant ID number).

As a general rule, payment processors offering all-in-one solutions (i.e. a payment gateway plus a merchant account) will be more expensive. Similarly, companies which do specialise in payment gateways separately are keen to upsell you into their preferred merchant account that offers them a percentage of your sales.

We cover best payment gateways providers here but here is a summary of some all-in-one solutions you may want to consider:

Some standalone payment gateways that can integrate with multiple payment processors / merchant accounts: 

Should you consider stacking multiple payment gateways?

If you find that your preferred payment gateways lack one or two key features and none cover all your requirements it may be worth combining more than one. For example, you may want add functionality so you can accept Amex, Apply Pay, multiple currencies or recurring payments and therefore sign up to multiple providers. 

Adding payment options your customers want via multiple payment gateways will cause less friction at checkout and could increase conversion rates. 

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