Payment gateways are used to gather and send payment information to payment processors. With gateways, we can process debit or credit card transactions, contactless payments, and retail and card-not-present (CNP) transactions in addition to alternative payment methods (APMs). However, payment gateways have a few advantages and disadvantages that businesses should be aware of when comparing payment providers.
What Is a Payment Gateway?
A payment gateway acts as a communication channel between the merchant/consumer and the processor/acquirer, providing information on accepted payment methods, transaction value, and approval status.
Many people are often confused when it comes to payment processing vs. payment gateways. Payment processors facilitate the actual transaction and money transfer between the merchant and the customer's banks. They relay transaction details to payment networks (Visa, Mastercard, etc.), notify the payment gateway of approval or decline, and then facilitate the transfer of funds to the merchant's bank account. Gateways make it possible for businesses to integrate with multiple payment processors easily.
Advantages of Gateway Payment Processing
Gateway payment processing is secure, supports many payment methods, and is an easy way for business owners to integrate multiple processors.
Payment gateway providers make it easy to integrate the system with the rest of your payment processing and usually add features and functionality without increasing PCI scope for the merchant.
Gateways are an easy way to build connections with multiple processors without running a payment company on top of your core business. Subscription services that want to take online payments can set up the payment gateway easily by integrating the API, creating a hosted payment page, or using a variety of PCI-compliant methods for passing the transaction, consumer, and subscription details.
There are generally few limitations to integrating a payment gateway, but you can check with your e-commerce platform and payment processor to see which gateways are supported and the level of integration/certification they have with your acquirer. Some web hosts or platforms may have partnered with a specific gateway service provider, so you should research this before setting up your website.
Enhanced Payment Security
Payment gateways are equipped with security features that ensure the safe communication of customer information. Some security features include:
- Encryption: Information is encrypted so that it can't be intercepted or used while moving from your browser to the payment processor network.
- Tokenization: Sensitive data is replaced with tokens that can't be accessed by unauthorized users, simplifying payment compliance for businesses and reducing the risks of data breaches. The best payment gateways will support Network Tokenization as well as processor tokenization and PAN management to provide the best value and performance for the merchant.
- Authentication: This covers various services, from methods of API authentication, IP whitelisting, and encryption to login security for account takeover, user-based permissions, and multifactor authentication.
Wide Range of Payment Methods
Payment gateway technology has progressed to support a variety of payment types, which is highly convenient for customers.
Online transactions accept a wide range of payment methods, including:
- Credit cards
- Debit cards through Visa/Mastercard rails, as well as PINless debit
- Electronic checks covering ACH, Direct Debit, and account verification
- Real-time payments
- Digital wallets
- Alternative payment methods
Enterprise-level gateway technology will allow the merchant to manage their own payment pages, or it can determine which payment methods to present a customer based on their data.
Disadvantages of Gateway Payment Processing
While payment gateways can be useful, the majority of gateway providers are solely focused on charging customers and often overlook factors important to their customer's success. Let's take a look at the cons of gateways below.
When comparing payment solutions, it's important to note that most providers charge a fee for each authorization, whether the payment is approved or declined. Since the providers profit from these fees, the payment routing quality is degraded, leading to more declines. To combat this, you should use a payment solution that enables dynamic routing to ensure the payment data takes the most successful route possible for approvals.
Loss of Data and Lack of Reporting
Since payment gateways act as a middleman between your business and the payment processor, they can result in a loss of data and the inability to truly put your data to good use. However, when your business has a direct connection to payment processors, you can transmit raw processing data and access reporting features that allow you to analyze your payment processes. Your gateway should manage the direct connection and certifications to your processors while exposing the raw data to the merchant for further analysis.
Look for a platform that can deliver raw processing data to the best database products on the market, such as Snowflake, AWS, DynamoDB, Aurora, Redshift, or Azure SQL. Reporting features may include insights into your payment approval rates, processing costs, or general revenue. The best providers will constantly review transaction data and provide insights on how to achieve higher performance or how additional or alternative processors would improve your business. However, payment gateways are not designed to provide in-depth data or reports, so you could be missing essential information for improving your payment system.
Complexity of Implementation
Some enterprises and growing businesses may choose to build a custom gateway to service their specific use case. These are complicated to implement, costly, and require ongoing updates as payment regulations and data requirements evolve. They may also strain your system if they're not properly implemented.
Custom gateways require a technological infrastructure that is already built into most payment services. In addition, you need to include security features that align with payment regulations, and it can be costly to build your own platform. However, custom gateways give the business full control over the system and allow them to save on transaction fees.
Subscription businesses may also need more complex features to ensure customers are billed on time and correctly. Your gateway needs to integrate with your subscription management software so customers can choose and edit their purchases and payment information.
Choose the Right Gateway Provider for Your Business
Payment gateways have pros and cons, so you should compare your options before building your payment system. Bad solutions can increase your business costs and reduce system performance, but good payment solutions can reduce speed to market, enhance value for your customers, and strengthen your security.
The best subscription management solutions offer direct platform integrations tailored to the payment processing platforms utilized by your business. On the Revolv3 platform, we are integrated with the best payment processors in the business. When you join the platform, our integrations become yours immediately.
Revolv3 is a full-stack payment optimization and orchestration platform built to grow with you. Unlike the industry norm, we only charge for approved payments. It doesn't matter if they're recurring or installment payments or one-time transactions. This price also includes use as a payment gateway.
Our success is your success, so request a demo to learn more about how we can help your business today.