The purpose of setting up a business is to make a profit, and this profit will only materialize if customers are offered a means to make seamless payments. Before now, traditional means like cash and transfers were the acceptable means of payment, but with the advancement in technology, payment gateways have become an inseparable part of eCommerce.
And why wouldn't they be, considering the many benefits they offer? However, payment gateways are not all roses and sunshine; hence, this article discusses the cons and pros of payment gateways. In this article, you will also learn what is a payment gateway. So, let’s get started already, shall we?
What are Payment Gateways?
Also known as online payments, a payment gateway is a technology that authorizes money transfers between a customer's card and the retailer's payment processor. It is a middleman between the customer and the merchant's bank account. But beyond approving payments, payment gateways also check for fraud. Examples of payment gateways include PayPal, Amazon Pay, Skrill, Braintree, Cybersource, Visa, Nochex, etc.
How Payment Gateways Work
To understand payment gateways, let's look at how it works:
- The customer places an order on the eCommerce website
- The payment gateway collects the necessary information needed for the transaction to take place. This may include name, card number, CCV, and card's expiry date.
- The payment gateway encrypts the information before forwarding it to the credit card company or financial institution.
- Next, the payment gateway further checks the validity of payment by reaching out to the customer's credit card company.
- The customer's card company information from the payment gateway confirms there's enough money to cover the payment.
- Finally, the merchant sends a payment confirmation message to the customer affirming the receipt of the funds.
Things to Consider with Payment Gateways
Consider the following features when dealing with payment gateways:
- Speed of Service: Cash flow is important for every business; hence ensure the payment gateway your customers use is one that ensures you get paid instantly.
- System Integration: Some payment gateways are easier to integrate than others. Hence, choose a payment gateway that integrates easily into your system, especially if your business is small.
- Brand Recognition: Consider popular and well-known brands such as PayPal, Amazon Pay, etc., as this will boost customers' confidence in your business.
- International Support: If your business is global, it's only wise to use a payment gateway that accepts payments from the countries you are present in.
- Security: Customers want a safe and secure gateway as their money and data is at stake. Hence, review the gateway’s security details to be sure your customers’ security will never be compromised.
- Customer Support: You want to avoid a payment gateway that takes forever to resolve an issue. This can negatively impact your business. Hence, consider gateways that offer quick customer service.
Benefits of Payment Gateways
The following are the pros of payment gateways:
With payment gateways, customers and merchants don't have to stand in queues, wait for paper bills or write checks; they also don't have to wait until banks clear their cheques before accessing their money.
Besides, payment gateways save much time, especially for merchants, as they don't have to print or mail bills. Gateways are fast and efficient; you can complete transactions within a few minutes.
Payment gateways enable businesses to reach a global audience. In fact, research has shown that 56% of online customers prefer to shop cross-country. Hence, using a payment gateway for your business will open it up to more customers, which invariably means more sales, brand reach, relevance, and recognition. What business doesn't want all of these?
Online payments allow customers to pay for goods and services at any time, day, and place. You don't have to carry wads of cash or worry about change or theft. With payment gateways, all you need is a pin and some card details, and within a few minutes, your transaction is done!
Online payments are less expensive to set up and maintain than traditional payments. In the latter, the company will have to hire cashiers to manage transactions. This is different from the former; with gateways, set-up costs are lower, and transaction costs are reduced.
Various payment platforms
Online payment offers customers a wide variety of payment platforms to choose from. As a business, providing all the popular payment gateways will increase the chances of your customers buying from you.
Other advantages of payment gateways include the following:
- Quick and easy setup
- Easy to manage
- More distribution channels are available
- Ability to set up recurring payment setting
- Great customer experience
Drawbacks of payment gateways.
Payment gateways are not without their drawbacks, including:
Like most software dependent on technology, payment gateways are prone to downtimes and technical glitches. Although the gateways always announce any tech maintenance to be done, which usually occurs at night, sometimes it can take place without warning. These issues can negatively impact customers' shopping experiences and, in turn, the business.
Online payments are fraught with lots of security risks. Hackers and fraudsters can access customers' financial data if the security system is weak. Also, the lack of verification systems such as biometrics and facial recognition makes it easy for criminals to take advantage of a weak system and get away with it.
Some payment gateways demand implementation costs, while others demand customer processing fees. Besides, using online payment gateways requires access to an internet connection, which involves extra costs for merchants and customers.
As more payments are being made online, so are criminals moving their skills online. Thus, phishing attacks, database exploitation, and cyberattacks are becoming more prevalent. To prevent this, businesses often spend a lot of money installing payment-security software, which involves extra costs.
Some banks limit the number of transactions customers can make per time, while others limit the number of transfers permissible daily. Furthermore, some gateways have time durations within which certain processes (such as receiving and accepting OTP) can be concluded. These limitations often deter people from using online payment platforms.
Other limitations include the following:
- False identity
- Disputed transactions
- Loss of credit cards
- Hacking of password
- Cost of a security breach
Payment gateways are becoming more and more popular with eCommerce businesses, and that's because of their many benefits. But despite these advantages, there are many drawbacks too. However, with the right precautions, these drawbacks can be easily minimized to the barest minimum. Overall, online payment remains the safest, easiest, and best payment platform for businesses.