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Which Type Of Payment Gateway Is Right For Your Business?

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By Author: Sahil Verma
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Payments are a company's lifeblood. When payments are flowing smoothly, everything else follows. That is why it is critical to select a system that integrates well with your business and meets all of your payment requirements. These systems are frequently referred to as online payment gateway.

So, What Exactly Are Payment Gateways?

First, a word about terminology:

You may have heard or seen this term used in a variety of contexts. The issue is that the term "payment gateways" is frequently applied to systems that go beyond standard gateway functionality, so the terminology can become confusing.

Consider the square vs. rectangle distinction: all squares are rectangles, but not all rectangles are squares.

The broader category (the rectangle) in this case is "payment platforms" or "payment solutions." The best payment gateways are a subset of that category (the square); other platforms, such as payment facilitators, also exist. However, in general, people tend to use payment gateways as a catch-all term for all platforms, which ...
... is analogous to using a square to describe a rectangle.

Although it is not technically correct, we frequently use the term payment gateways because it is the term most people are familiar with. In this post, we will discuss the various payment gateway types, including what we refer to as "traditional or limited payment gateways" (the square again). Keep in mind that the broad category we're discussing is payment platform types.

If you want a more in-depth explanation, check out this blog.

Whatever the term, this is what it means:

A payment gateway is essentially a link between your customers and the relevant financial institution. Gateways serve as a connection point between a merchant's website and a payment provider or banking network. They essentially serve as a "wire" that connects your website to a payment provider, allowing secure payment data to flow back and forth.

Payment Gateway Types

The main payment gateway types can be classified based on how they've evolved over time and, as a result, what kinds of features they provide to their users. The three major types are as follows:

Gen 1: Basic or Traditional Payment Gateways
Gen 2: Startup-Friendly Payment Gateways
Gen 3: Payments as a Service (also known as Full Payment Platforms, Payment Facilitators or Global Payment Gateways)

Gen 1: Basic Payment Gateways

Basic or traditional gateways provide a single connection to a payment processor for the merchant. This is the most do-it-yourself type, as you're essentially creating your own payment solution.

If you only want to sell in one country using credit cards, a Gen 1 gateway is ideal. If you want any other features, you'll have to add them with additional integrations (more on that later, but essentially it means more work for developers).

That means more work for any other regions or payment types, whether it's a bank or someone else — and multiples aren't good. To manually create a cohesive payment system, you'll need to stitch together separate chunks of code for each feature you want. Basic payment gateways can meet your needs if you're willing to invest in significant development and software resources.

Basic gateways, as a result, necessitate significant resources for upkeep and are surprisingly expensive, not least because those resources cost both time and money. It's also difficult to avoid the extra work because merchants typically use five gateway processors, four acquiring banks, and six payment types.

Gen 2: Startup-Friendly Gateways

Gen 2 gateways are easier to use and include more features, such as functionality packaged for specific regions.
Startup-friendly gateways are exactly what they sound like: they're designed for startups that want to expand but don't require advanced payment capabilities. If you want more than the basic payment services, you'll still need to invest significant time in building and customizing your solution, but Gen 2 gateways do come with easy-to-integrate APIs.

Gen 3: Payments as a Service

Payments as a service, also known as full payment platforms or payment facilitators, are the third way to set up payments.
Payment facilitators, as opposed to separate chunks of code, are an all-in-one package with robust payment features built-in so you can easily enable the ones you need. As a result, they are far better suited to growing businesses, as their features can be expanded as your needs change. They also include additional features such as fraud and chargeback management.

Facilitators have the most features of any online payment gateway type. For example, they have built-in support for multiple payment types and currencies, so they can handle all of your global payment needs.

Facilitators are far better at reporting because they are one cohesive system. Instead of having to reconcile multiple standalone integrations, facilitators have all of your payment data in one place. Furthermore, they are far easier for developers to manage: facilitators require significantly less work than traditional gateways, with simple management for everything from setup to error codes.

One of the primary reasons for this advantage is that facilitators only require one integration. So, what exactly are integrations, and what are some of the most common payment integration types?

Using Your Gateway: Payment Integration Types

When choosing a payment gateway, integrations are an important factor to consider. When you've determined which gateway type is best for your needs, think about which integration options will help you make the most of that gateway.

Integrations can be quite specific, such as one for Apple Pay only, or a different integration so that your payment gateway provider can operate in multiple regions. If your provider's integrations do not enable all of the payment functionality you require, you will be severely limited in your ability to expand globally or accept international customers.

More integrations, on the other hand, aren't always a good thing. More integrations necessitate more maintenance and support, as well as a higher overhead, so look for a gateway that requires fewer integrations to provide the functionality you require.

There's another complication here: your gateway can be integrated into a variety of ways. These payment integration types are divided into three categories:
Solutions that are hosted. These are ready-made options for configuring your payment gateways, such as hosted payment or checkout pages. They're ideal for small teams with a few developers because the payment provider handles everything.

APIs. APIs integrate the gateway seamlessly with your website; they're better suited for organizations with developers who can handle the setup — especially since more APIs means more dev work. APIs are useful, but the fewer there are, the better.

Development Kits for Software (SDKs). An SDK works similarly to an API, but it also includes a set of tools, libraries, relevant documentation, code samples, or guides that enable developers to accept payments in your app or website with a complete toolkit.

Plugins from third parties. If you're already using an eCommerce platform, you'll need a payments provider with a plugin for that platform; compare plugins from each provider to ensure they have all of the features you require. That plugin enables all of the payment provider's products and features with simple integration.

The Right Combination of Gateway & Integration

To summarise, there are various types of payment gateways, each with its own set of features. These gateways can be configured with various types of integrations, requiring varying levels of development work.

When selecting a gateway, look for the features and functionality you require first. Then consider the various integration types that can be used to configure that gateway. A Gen 2 payment gateway, for example, has some useful features, but you'll need multiple integrations to connect to that gateway across different regions, so you'll only benefit from those features if you're willing to invest in the necessary development work.

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