How to Choose the Right Payment Gateway for the E-commerce Business

E-commerce is a promising business area that shows high growth rates each year. Global online sales reached $5.2 trillion in 2021 and are projected to grow to $8.2 trillion by 2026.

Such popularity of the e-commerce sector is explained by the fact that online shopping is much more convenient than purchasing in physical stores. It offers customers 24/7 access to products, recommendation algorithms that identify individual needs, and fast and secure transactions.

Selecting the right payment gateway is a crucial decision for any e-commerce business. A payment gateway is an online service that facilitates transactions between the website and customers' financial institutions.

In this article, I want to take a closer look at its benefits for the e-commerce industry, specifically how to choose a payment vendor and when it is worth developing a custom gateway.

Classification of E-commerce Businesses

E-commerce is a huge industry that includes companies of various kinds. They all use different business methods, and their needs are also fundamentally different. Therefore, before choosing an online payment tool, it is vital to determine the main segments of the e-commerce market.

There are several criteria by which e-commerce segments can be distinguished.

Geography

Depending on whether you work for the audience of one state or cover several regions, your trading business can be local or international.

Sales Channels

You can sell your product through the website or mobile app, or use both channels simultaneously. Many entrepreneurs use the latter option to attract the maximum number of customers.

Some sell through only one channel. As a rule, this strategy is typical for companies with a narrow business niche and loyal customer base.

Platform

Entrepreneurs who work in e-commerce can build their online store on their own or on a purchased platform (like Shopify or WooCommerce).

It's worth noting that both creating your own platform and purchasing one like Shopify comes with advantages and disadvantages. For instance, proprietary software has higher security, broad integration capabilities, and better scalability. Ready-made platforms offer all the necessary functions and many plugins, requiring fewer costs to start.

Sales Item

E-commerce is most commonly associated with the sale of physical goods online. However, it would be a mistake to consider it in such a narrow context. The concept of e-commerce includes any kind of commercial online transactions. For example, buying a subscription to paid services.

Needs of E-commerce Business to Consider When Choosing a Payment Gateway

I have figured out that e-commerce is a general concept that unites different business types. Sure, each company has individual needs to be considered when choosing a payment gateway.

International Business

International business is an entrepreneurial activity associated with making a profit from interstate business transactions. Its feature is the need to conduct financial transactions in different currencies and locations.

To make a payment gateway meet the requirements for conducting international business, choose a provider that covers the maximum possible number of countries. For instance, checkout.com or PayPal.

Checkout.com is available in over 170 countries and offers seamless integration with many e-commerce platforms, including Shopify, BigCommerce, and many more.

PayPal is a payment system that operates in 202 countries with 25 currencies. It also supports integration with e-commerce apps and websites, as well as accounting tools. For example, Xero and Quickbooks.

Local Business

Local businesses are companies that cover one particular state or country.

To succeed, such companies must adapt to the specifics of their country. It also applies to the financial side of the business process. Choose a gateway that supports popular payment systems in a particular region.

For example, PayPal is popular in Germany and Italy. According tostatistics, nine out of ten shoppers in 2022 used the system for online payments.

Let’s take France as an example.The leader of online payments here is the national settlement system called Cartes Bancaires and its associated debit card, Carte Bleue. Actually, card payments in this country are prevalent. 58% of respondents of the Statista survey said they prefer to pay with debit and credit cards for online purchases.

Purchases via Mobile Apps

Using one sales channel imposes some restrictions on the choice of payment gateway.

For example, you can sell games through the App Store and/or Google Play. Accordingly, you have to accept payments through their payment gateway and pay them a transaction commission.

Multichannel Retailer

If you use multiple sales channels in your business, consider the needs of all buyers. For example, to ensure a good mobile app experience, I recommend selecting payment gateways that support payments via Apple Pay and Google Pay.

Store Built on an E-commerce Platform

If you are going to develop a store based on a ready-made e-commerce platform, check which payment gateways it has integration with.

For example, Shopify works seamlessly with PayPal, Stripe, WorldPay, Klarna, and more. The platform also has its own payment solution called Shopify Payments. It may be the best choice for you because it has a full set of necessary features. Moreover, it frees the seller from transaction fees.

Whichever option you choose, I do not recommend implementing a custom payment gateway in this case: it will be expensive and time-consuming.

Key Criteria for Choosing a Payment Gateway

Choosing a payment gateway for your e-commerce business may be quite challenging. However, there are several criteria that you should pay attention to before settling on a particular provider.

Popularity of the Solution on the Given Market

Implementing a payment gateway that does not support popular payment systems in the country of doing business can cost the entrepreneur the lion's share of the target audience.

And it's not so much the habits of buyers or their refusal to learn something new. The problem is that some payment methods may be unavailable in the country.

For example, in Germany, there are many debit cards that cannot be used to pay online. Therefore, it is advisable to use the PayPal payment system there as it allows debiting funds from the account, not from the card.

If you consider the United States market, don't use Google Pay only, ignoring Apple Pay. After all, according to statistics, almost 57% of Americans are Apple iPhone users.

Transaction Fees

Transaction fees are charged to merchants for processing customers’ online payments. The amount of such a commission depends on the pricing model of a particular payment instrument. Most often, it is a percentage of the transaction amount.

Entrepreneurs have the opportunity to negotiate a personal rate depending on the scale of their business. If your company has a large turnover, you can feel free to ask the payment provider for a discount. However, if you're a small business, you'll likely have to settle for the vendor's standard rates.

Ease of Use of the Payment System

Did you know that 89% of buyers move to a competitor's website if their user experience in your online store is unsuccessful? And 52% of customers won't buy from you if they're not happy with the mobile experience.

This statistic confirms my belief that the software’s ease of use is one of the essential conditions for the success of your business. Consider this when choosing a payment gateway.

For example, if you are going to sell with a mobile app only, don’t be limited to the ability to pay by card. This method involves verification by sending an SMS message, which is very long and inconvenient.

In this case, you need to provide a system that does not require multiple confirmations, such as Apple Pay or PayPal.

A Possibility of Integrating With the Existing Infrastructure

An important criterion when choosing the optimal payment gateway is the ability to integrate it with your software easily. It is critical if the store is built on an e-commerce platform like Shopify, WooCommerce, Magento, or BigCommerce.

If seamless integration is not possible, it is better to think about an alternative product or develop your own solution. The implementation of the chosen gateway may be expensive and take too much time.

Currency Conversions Handling

The ability to convert currencies on the website can be your significant advantage in the e-commerce market. This feature allows:

• Sellers (and especially cross-border merchants) to earn extra money on currency conversions.
• Clients to wait for the optimal exchange rate and make the most profitable purchase.

Compliance Requirements: PCI DSS, GDPR, and Other

Before deciding on one provider, I recommend clarifying whether it has all the necessary certificates that guarantee the solution's security. They include SSAE 18 SOC 2 and 3 Report, ISO/IEC 27001 Certification, PCI DSS Certification, GDPR Compliance, NACHA Certification, and CSA Certification.

When choosing an online payment processing service provider, pay attention to its compliance with basic standards, passing additional audits, and the presence of optional certificates.

When It Makes Sense for a Merchant to Create a Custom Gateway

A payment gateway is an online payment processing service that allows you to automate the process and make it safer with reliable data encryption technologies. It acts as a kind of intermediary between the client and the payment system.

You can choose a ready-made solution on the market. For example, PayPal is a universal product that combines the functions of a payment system and a gateway or any other existing software: Stripe, Square, Worldpay, Braintree, etc.

Sometimes it is much more profitable to develop your own payment gateway, adapting to the requirements of a particular merchant.

In What Cases Is It Better to Develop Your Own Gateway?

• Large flow of cross-border payments. In this situation, the seller is forced to pay a large percentage of each transaction to a third-party vendor.
• Significant cash flow. In this case, developing your own solution will also be more profitable than paying transaction fees.
• Support for numerous payment methods. If multiple payment methods are available to your customers, you need to partner with several vendors, which can be quite costly.
• Risk of vendor lock. Binding to one vendor can become a real problem for a business if the quality of the services decreases or the vendor significantly increases their cost.

The Final Word

In this article, I told you how to choose a payment gateway for your e-commerce business. I hope it will be easier to decide what suits you: a ready-made solution or a custom product.

Remember, if you are a small store owner and the standard payment tool is enough, there is no point in ordering a custom solution. If your requirements are unique, it makes sense to invest in creating your own software.

When selecting the best payment gateway for your e-commerce business, consider the type of your company and the needs of your target audience. Check with your provider in advance about the fees they charge, and keep that information in mind when making your decision.