4 types of payment gateway: a comparative guide

A payment gateway is an eCommerce service that’s used to authorize and process credit card and debit payments for online businesses and brick-and-mortar stores.

Today, many businesses have moved away from more traditional payment methods (such as direct bank transfer) to payment gateways because they enable instant payment, credibility for merchants, and security, among other benefits.

We look at the pros and cons of each type to help you decide which will work best for your business. 

Types of payment gateway

• Hosted payment gateways

Hosted payment gateways direct your customer away from your site’s checkout page. When the customer clicks the gateway link, they are redirected to the Payment Service Provider (PSP) page. Here, the customer fills in his or her payment details, and after paying, is redirected back to your website to complete the checkout process. The most well-known example of a hosted payment gateway is PayPal.

Pros:

• Secure – transactions are PCI compliant and typically offer the customer fraud protection
• Simple – most users are familiar with this type of payment gateway, and they’re easy to set up
• Customizable

Cons:

• Because the gateway is external, the merchant can’t control the whole user experience

• Self-hosted payment gateways

With this type of gateway, payment details are collected from the customer within the merchant’s website. After the details are requested, the collected data is sent to the payment gateway’s URL. Some gateways require the payment data be provided in a specific format, whereas others require a hash key or secret key. QuickBooks Commerce's B2B Payments and Shopify Payments are examples of self-hosted payment gateways, and both are powered by Stripe.

Pros:

• Good customer experience – the entire transaction is completed in one place
• Customizable flow – the merchant has control over the payment journey

Cons:

• No support system- Usually self-hosted gateways do not have a technical support team that you can rely on if the system fails. You would have to figure out how to resolve the problem on your own or hire a professional which could be costly. However, QuickBooks Commerce's B2B Payments provides you with technical support, so you can rest easy knowing a team will always be supporting you. 

• API hosted payment gateways

With API hosted payment gateways, customers enter their credit or debit card information directly on the merchant’s checkout page and payments are processed using an API (Application Programming Interface) or HTTPS queries.

Pros:

• Customizable – offers full control over the customer experience and UI of the payment journey
• Capable of integration – can be used with mobile devices, tablets, etc.

Cons:

• Security – merchants are responsible for PCI DSS compliance and purchasing SSL certification

Local bank integration

Local bank integration gateways redirect the customer to the payment gateway’s website (the bank’s website) where they enter their payment details and contact details. After making the payment, the customer is redirected back to the merchant website, with payment notification data sent upon redirection.

Pros:

• Quick and easy set up – good for small businesses who need a simple one-time payment structure

Cons:

• Basic features only – usually doesn’t enable returns or recurring payments, so not ideal for wholesalers

The payment gateway you choose should be dependent on your business model, the types of features you require, and the amount of control you want over your customers’ payment experience.

For online businesses and wholesalers especially, a self-hosted payment gateway offers the most streamlined experience because it allows the customer to complete the transaction from a single page, and offers the merchant control over the customer experience. And, with QuickBooks Commerce's B2B Payments, you can also have peace of mind that all customer data is protected.