All You Need to Know About Online Payment Gateways

Online payments are spreading with the intensity of the coronavirus. With that come the questions of how merchants can transform their offline business and what they need to start accepting payments through their online stores. The answer is simple – with an online payment gateway.

 

What is an online payment gateway?

Online payment gateways act as online Point-of-Sale (POS) terminals. They allow merchants to read and process their customer’s payment card data and receive the money on their merchant accounts.

You might be wondering how an online payment gateway works. When the customer pays on the merchant website, the online payment gateway encrypts the information and sends a request to the customer’s issuing bank. The issuing bank then sends the approved or declined payment message to the card schemes, which in turn send the information to the merchant’s bank account.

 

 

What are its advantages?

The ability to accept payments online is a huge advantage on its own. It improves the business performance by adding a new sales channel. However, this is not the only benefit of online payment gateways.

For instance, they provide an easy checkout, which is of utmost importance for a seamless user experience. Moreover, it helps catch impulse purchases and makes shopping online as easy as possible.

Another advantage of online payment gateways is that they present merchants with the opportunity to offer multiple payment options like credit cards, digital wallets, QR payments, recurring billing, and local payment methods.

Furthermore, they provide chargeback prevention, faster payment processing and can be integrated with a shopping cart. But most importantly, online payment gateways offer merchants a high level of security and fraud management. Payment gateways are compliant with security standards like PCI DSS for providing secure transactions.

 

What to consider when choosing an Internet Payment Gateway (IPG)?

When investing in new technologies, it is important to make research on what characteristics should they possess in order to make an informed decision. Let us start with the different types of online payment gateways.

 

Types of IPG

When it comes to choosing a payment gateway, it is important to note that there are three main types, depending on where the payment processing takes place:

• Non-hosted – The checkout and payment happen on your website
• On-site, off-site – The checkout happens on your website while the payment is processed through the provider’s back end
• Hosted – The checkout and payment happen on the provider’s webpage

 

 

Multi-acquirer vs single-acquirer

Another essential detail that merchants should take under consideration is whether they want to incorporate a payment gateway that works with multiple acquirers or with just one. Both approaches have their pros and cons. The decision depends to a high extent on the merchant’s business needs and markets.

 

Security

There is no second opinion that data security and management is a must when it comes to payments. Merchants are responsible for the protection of their clients’ private data and card information. Fortunately, payment gateways are PCI DSS certified which means that they meet the strictest security standards.

 

Accepted payment methods

The more, the better. Merchants need to offer as many payment methods as possible as customer preferences change. Currently, they are looking for convenience, fast execution, and trustworthiness.

It has been estimated that 50% of shoppers will leave their cart if the online shop does not offer their preferred payment method. That’s why diversity is key to the sales increase.

 

Costs

Like every service, payment gateways also come with some service fees. Usually, they represent a percentage of the transaction plus some fixed transaction fee. Therefore, merchants should look into detail the pricing plans of their payment gateway providers and choose the one that suits them the most.

 

Compatibility

It is important to investigate the technical parameters of the payment gateway and figure out if it is compatible with the merchant’s platform.

Fortunately, there are payment gateways that offer customization services so that their solution fits into the merchant’s current system.

Online payment trends

Global payments revenue is constantly growing and is expected to reach 2.9 trillion dollars by 2030. The forecasted compound annual growth rate between 2020 and 2025 is 7.3% and 6.4% between 2025 and 2030.

 

*Source: BCG Global Payments Model 2021.

 

According to research conducted by the Boston Consulting Group, Latin America and the Asia-Pacific regions will have the highest CAGR of more than 8% for the period between 2020 and 2025 reaching revenue of 190 and 932 billion dollars respectively.

North America and the Asia-Pacific regions are foreseen to have the highest payments revenue leaving Europe in third place with a revenue of 307 billion dollars. Whereas the Middle East and Africa get the last spot with only 84 billion dollars in revenue.

 

*Source: BCG Global Payments Model 2021.

 

Online payment gateways in numbers

In 2020, the global payment gateway market size was estimated to be 18.21 billion dollars. Furthermore, the compound annual growth rate (CAGR) of the market is expected to be 21.7% from 2021 to 2028.

There are many factors leading to this growth however the main reasons remain the global pandemic, the tendency towards a cashless world and the advancements in the fintech sector.

The payment gateway market was dominated by the hosted segment with more than 57.0% share of the global revenue in 2020. The merchants’ preferences towards hosted payment gateways are increasing due to their benefits, such as high security, reduced merchant liability, and predefined setups for payments.

However, the non-hosted payment gateways are also expected to have significant growth in the upcoming years as there are merchants that prefer having full control over their checkout processes and do not want to redirect their customers to another checkout page.

 

What does the future hold?

It is safe to say that we are entering the beginning of the cashless society era. Online payments will keep growing their popularity and become the norm in the payments industry.

What people should focus more on is how they can increase cyber security and data safety so that they can prevent breaches and fraudulent activities. Fortunately, fintech companies like SEPA Cyber Technologies have made it their mission to drive innovation in the fintech world and move it forward.