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Payment gateways: 4 most-searched-for questions - and their answers

If you’re a small business owner looking into digital payments for the first time, it is very easy to get lost in all the jargon. So, before we dig into our four most searched-for questions about payment gateways, here’s a quick glossary of key terms:

  • Payment gateway: a payment gateway is a business that captures and transfers payment data from the customer to the acquirer or payment method.
  • Payment method: a payment method is a way for customers to pay for products and services. In physical stores, these may include cash, gift cards, credit/prepay/debit cards, or mobile payments. Online these may also be e-wallets and credit financing such as Buy Now Pay Later (BNPL) methods such as Klana.
  • Cardholder: the person who is making the payment (the customer)
  • Card network: a company that provides credit and/or debit cards (e.g. Visa, Mastercard)
  • Card issuer: a financial body that offers cards and credits limits to consumers
  • Acquirer: a financial institution which processes credit/debit card transactions on behalf of the card issuers.
  • Issuing bank: the cardholder’s bank, processing payments on their behalf (typically sending funds to the merchant)
  • Acquiring/Merchant bank: the bank that is processing payments on behalf of the merchant (receiving funds from the customer)
  • Merchant: the business that is accepting the payment (e.g. a retailer)

1. What is a payment gateway?

A payment gateway is a payment services provider (PSP), such as a bank or another financial institution, that offers online and offline payment technology to merchants. Previously, payment gateways only accepted credit and debit card transactions, but now with a plethora of alternative payment methods (APMs) available, payment gateways can process both traditional forms of payment - such as cash, checks, cards - as well as BNPL, tap-and-pay, cross-border and account-to-account payments (like Citizen).

2. How does a payment gateway work?

  1. When a cardholder makes a payment on an online or offline store, the payment gateway reads and captures the information about the payment. 
  2. Next, the gateway forwards the information to the acquirer or payment method (“payment processor”)
  3. The payment processor contacts the issuing bank in order to confirm that there are enough funds for the payment to be processed without compromising the cardholder’s balance. 
  4. Then the payment processor contacts the card issuer to initiate and process the transaction to their acquiring account.
  5. The payment processor then responds when the money has been transferred successfully.
  6. The payment processor settles the funds to the merchant either daily/weekly or some other pre-contracted timeframe, minus their fees.

3. Payment gateway vs payment processor

A payment processor is a company that oversees and manages a payment process. A payment processor acts as the middleman between the merchant and the banks, and is employed by the merchant to oversee their transactions. They manage everything from when they first collect the information about the transaction until the funds have landed in the merchant’s account. A good example is Visa or Mastercard, which are card networks and issuers, but they are also processors because they process the payments that go through them.

So, if a payment gateway is employed by a merchant and is processing payments on their behalf, doesn’t this mean they are a payment processor? 

Not necessarily. Payment gateways process the front-end part of a transaction, between the cardholder and the merchant, whereas a payment processor takes care of the back-end of the transaction, between the issuing bank and the acquiring bank.

4. How to choose a payment gateway for your website

Choosing a payment gateway is an important decision for a business, and needs to be made in a considered fashion to ensure you choose the gateway that is the best fit both for the way your customers want to pay and the profile of your business operations. 

However, there are some easy key points that businesses should consider when choosing a gateway, depending on the size and maturity of the business, the industry and the target market.

Cost

  • Payment gateway integration - how easy is it to get set up? Will you require any development to integrate into your online shopping cart or retail facilities? 
  • Payment gateway processing charges - this one depends on the gateway and they will either come as a monthly fee or a fixed fee per transaction. 
  • Payment processor fees - you will also have to pay a fee to the payment processor. If it is a card network, fees can be as high as 3%.
  • Interchange fees - they are paid by the merchant for accepting credit/debit card payments from the cardholder.
  • Make sure to ask about any other fees that may apply. The last thing you want to do is to commit to a solution that won’t give you a clear picture of your costs when using it.

Currencies

  • If you accept payments from international customers, your payment gateway should be able to provide cross-border options and be able to accept multiple currencies.
  • The majority of eCommerce-focused payment gateways don’t accept cryptocurrencies. If you are also considering accepting crypto payments for your business, you will have to look for a separate gateway.

Markets

  • How many countries do they support, for my customers outside the UK? If you are a business that has a customer base outside the UK, you should keep in mind that your payment gateway should be able to accept payments from other countries as well. Here you should also consider whether a gateway provides language optimisation and local payment options.

Payment options

  • Generally, you should ensure you offer the payment methods that your customers prefer to reduce the chance of drop-off during the checkout process. The norm is for a payment gateway to accept and process card transactions, but increasingly alternative payment methods are being made available, such as bank transfers, digital wallets, or vouchers. 
  • If you have a subscription-based model, then, naturally, make sure this option is available through your chosen payment gateway.

Payment environments

  • In an omnichannel world, where shoppers move between multiple devices and environments, you may need to ensure your payment gateway supports both offline and online payment environments. Do they also cover in-app and website payments? Can you integrate them with your electronic point-of-sale?

Security

  • This is often an overlooked factor when choosing a payment gateway. Since the nature of a payment gateway is to process transaction data, it is vital that its systems are robust and secure. Because when something goes wrong, the first person that your customers will turn to will be you. Make sure that the payment gateways you are looking for are PCI DSS level-1 compliant, which is the highest security level of compliance, and are regulated by the Financial Conduct Authority (FCA), which is the regulatory body for financial services in the UK.

Operations

  • Finally, look at how your payment gateway can integrate within your existing systems and processes to ease, rather than add to, the friction of your day-to-day operations. This includes automated reports, plug-in functions, and integrations with your other software (e.g. accounting). 

Using Citizen through a payment gateway

Citizen’s PayBlox software is a purpose-built payments solution that can be integrated into your existing systems to allow you to offer secure, instant account-to-account payments with a great customer experience. PayBlox is quick to set up (and we have plug-ins for most shopping carts), and we provide you with fully tested end-to-end UX optimisation to ensure you have a payment experience worthy of your brand.

You can add Citizen as a payment option at checkout alongside your existing providers. We work with many brands, large and small, across the UK and Europe, and would love you to try it in your business.

Try it yourself here and for a full demo or to talk to us about the options, contact us here.

Metro Prepaid tenants use Citizen's instant cardless payments