Home Technology Complete Guide on Types of Payment Gateways – Pros, Cons & More

Complete Guide on Types of Payment Gateways – Pros, Cons & More

Types of Payment Gateways

Businesses these days have switched from traditional payment systems to online payment gateways for the advanced features and functionalities they offer. With the increasing popularity of eCommerce, payment gateways are experiencing huge demands. Almost every online business today has one payment gateway incorporated into their website. Some even prefer having multiple types of payment gateways to ease the transaction management and enjoy several additional features.

But when it comes to selecting the best type of payment gateway for your business, things get overwhelming looking at a variety of available options. If you’re dealing with the same issue, this article is for you. Here you’ll learn about different types of online payment gateways along with their pros, cons and features. So, let’s dive in!

Payment gateways make the transaction management easy and seamless.

What Is An Online Payment Gateway?

An online payment gateway is a software or an application that is used for accepting payments via multiple payment methods. It helps the merchants as well as consumers to manage their transactions in a highly efficient, fast and secure way.

About the working of payment gateways, they act as a secure interface between the banks of customers and merchants. When a customer initiates a payment by entering his bank details, the payment gateway sends an immediate request to the customer’s respective bank and the bank completes the payment as soon as it receives the request from the payment gateway. So, this is how payment gateways work and make the transaction process smooth and simplified.

Types of Payment Gateways

There are four different types of payment gateways that are most commonly used these days.

1. Hosted Payment Gateways

Hosted payment gateways are the systems that redirect your customers from your website’s checkout page to the specific payment service provider. When a customer clicks on the gateway option displayed at your check out page, they are redirected to the PSP website, where they need to enter their bank details. When the transaction is completed, the customer is again directed to the checkout page where he can finish the purchase.

Pros

  • Hosted payment gateways are highly robust and secure. Their transactions are PCI-DSS compliant and backed by a powerful anti-fraud system.
  • These are super easy to use. In fact, a majority of customers are familiar with these payment gateways.
  • They are easy to set up and install. Further, you can customize them according to your requirements.

Cons

  • Merchants can’t monitor the transaction process of their customer because it takes place on an external website.

2. Self-hosted Payment Gateways

Self-hosted payment gateways work by gathering the payment information of a merchant’s site from the customer. When the merchant requests this information, the collected data is sent to the payment gateway via a URL. Different self-hosted gateways require different types of formats of payment data, but most of them prefer a hidden key or a hash key.

Pros

  • These types of payment gateways offer added convenience to the users because the complete transaction takes place in one place.
  • Another benefit of these gateways is, they allow merchants to monitor the payment journey of their customers.

Cons

  • Self-hosted payment gateways lack the availability of a support system. This means you don’t have anyone to take assistance from, in the case of payment failure or any other technical issue.

3. API-Based Payment Gateways

In these types of payment gateways, users enter their credit/debit card details right on the checkout pages of the selected eCommerce platform or mobile application. Payments are then processed by a reliable Application Programming Interface or simply an API. This type of gateway is easy to set up and use.

Pros

  • API based payment gateways are extremely simple to set up and use.
  • They are customizable, meaning you can keep an eye on your customers’ purchase journey.
  • They can be easily integrated with mobiles and laptops.

Cons

  • Security requirements are very strict with these gateways. For using them, your site should have an SSL certification and should be fully PCI-DSS compliant.

4. Bank Integrated Payment Gateways

This payment gateway redirects the customer to the website of the bank. When the transaction is complete, the customer is routed back to the checkout page. This is again an easy to install and use payment gateway.

Pros

  • Great for small businesses, doesn’t require any technical expertise
  • Easy to install

Cons

  • Lacks advanced features.
  • Not suitable for medium and large businesses
  • Only for one-time payments

Final Words- Which Is The Best Type of Payment Gateway?

All the payment gateways listed above have their own sets of pros and cons. Therefore, it is tough to name the best gateway. Your selection should be based on the size and requirements of your business. If you’re a large business, then you would want to have a payment system that can handle large volumes of payments in a seamless manner.

Among all payment gateways listed here, self-hosted ones are slightly more popular than others. They are great for wholesalers and large enterprises that deal with heavy cash flow.

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