Jan 12, 2022 Val Kelmuts 7 min read
The checkout is the final stage of an ecommerce transaction. After you’ve done everything to woo your customers to your website and convince them to purchase your products, this is where all your hard work pays off.
Yet, this is also where you might see the most significant drop-offs in your sales funnel.
Trust and convenience are significant factors affecting your customers’ buying decisions. A quantitative study conducted by Baymard Institute revealed that two of the top ten reasons for cart abandonments during checkout were:
Besides providing an attractive website, choosing a secure payment gateway for your Magento store is essential to improve the checkout experience and decrease cart abandonment.
Here’s what you need to know about choosing the best payment gateway for your Magento store.
A payment gateway is a platform or service that allows retailers to collect payments through their websites. It’s like a cash register for an online store, except the fact that a third party manages it for your business.
Payment gateways act as middlemen between merchants and their customers. They help authorize and process transactions on behalf of merchants over a secure channel for a transaction fee. The fees vary based on the currency used, monthly transaction volumes, and the transaction risk. Other factors that influence the transaction fees include:
Interchange rate
An interchange rate is a fee a card issuer like Visa, Mastercard, or American Express charges the payment provider for every transaction. It helps the card issuer cover handling and bad debt costs that are a part of online transactions.
Payment type
There are several types and tiers of credit cards like corporate, rewards, and standard cards. Some cards are charged higher transaction fees over others based on the company’s qualified processing rate. Additionally, if you support other payment types like ACH or BACS, those payments might incur different transaction fees.
Payment mode
The charges levied on payments processed at a point of sale (POS) terminal in an offline store are usually lower than those imposed on online transactions. Offline transactions are considered a lower risk as the card is presented during the transaction, and therefore they’re charged a lower transaction fee.
You might have heard the terms “payment gateway” and “payment processor” used interchangeably. But there’s a clear distinction between the two.
A payment processor manages the transaction between a merchant, their customer, the customer card issuer, and the merchant’s bank.
In contrast, a payment gateway only secures data transmission and communicates the approval or refusal of payments between a website and the payment processor.
There are several types of payment gateways on the market today, including direct payment gateways and platform-based solutions. However, the four popular types of payment gateways are:
1. Hosted
Hosted payment gateways conduct the transaction at a location hosted by the payment service provider (PSP). During checkout, customers are directed away from the merchant site to the PSP’s portal and redirected back once the transaction is complete.
This is the safest type of a payment gateway because the PSP manages the PCI DSS compliance. However, merchants lose control over the customer checkout experience.
2. API/Non-hosted
A non-hosted payment gateway allows merchants to collect payment information on their website and transmit it to the PSP over an encrypted channel. The customer stays on the website the entire time that the PSP completes the transaction remotely.
This method provides a greater degree of control over the purchase experience. However, the merchant is responsible for securing the customer information when it’s transmitted from their website to the PSP.
3. Self-hosted
A self-hosted payment gateway allows merchants to collect on-site payments while the payment processor completes the transaction for the merchant remotely. In this case, the merchant is responsible for collecting, managing, and securing all customer information.
This method provides the most significant control over the customer purchase experience. However, it entails maintaining PCI DSS compliance and storing and securing customer data on-premises.
Therefore, it generally requires a Magento development company to set up and is best suited for large enterprises.
4. Bank-integrated
A bank-integrated payment gateway works like a hosted gateway. Customers are directed to the bank’s website to pay for the order during checkout and sent back to the merchant’s website once the transaction is complete.
They’re easy to set up and perfect for small B2B businesses that don’t need recurring payments. However, this method complicates the returns and refund process as they cannot be processed through the gateway.
Business needs
Start by analyzing your business needs. Ask yourself questions like:
Not all payment gateways are created equal. Therefore, answering these questions before you start will help you choose the right option.
Security
Security is the most crucial factor when you’re considering a payment gateway for your Magento store. Ensure you check for PCI DSS compliance when browsing payment gateway service providers and compare how each provider secures your customer information.
If you’re on a budget and don’t want to secure and manage confidential customer information yourself, a hosted payment gateway will be perfect for you.
Customer experience
Consider your business branding and what your ideal buying experience would look like from your customer’s perspective when you’re looking for a payment gateway. Prioritizing the customer experience can help you create a convenient checkout process.
Suppose you wish to keep an easy checkout experience where the customer remains on your website the entire time. In that case, a non-hosted solution like Stripe that uses an API to process payments will be ideal for you.
Payment options
If you’re a B2B ecommerce business that doesn’t process refunds and needs simplicity, a local bank integration will help you accept payments without complicating your business processes.
However, if you’re a B2C business that caters to a diverse audience, you can consider a non-hosted solution that supports multiple payment options. It will help you provide convenience to your customers and improve their buying experience.
Pricing
Payment gateway fees can vary significantly based on the services offered. Several service models are available, starting from simple gateways without transaction fees to more complex gateways with transaction, processing, and subscription fees.
Check all applicable fees before signing up with a payment provider. Note that in some cases, providers may charge you extra fees for changing gateways or integrating with other gateways.
Magento 2 comes integrated with top payment gateways out of the box. And its modular architecture and support for integrations help merchants use third-party payment gateways as well. Here are the best payment gateways for Magento 2 users.
PayPal
PayPal is the most popular online payments system in the world and needs no introduction. As of March 2021, it has a global user base of over 392 million users.
PayPal charges a standard transaction fee of 2.9% + a fixed fee for domestic transactions and a percentage-based fee for international transactions. It provides online invoicing, AutoPay, and seller protection programs to safeguard merchants from credit card fraud.
Because PayPal is built into Magento 2, it allows merchants with PayPal business accounts to accept payments made using major credit and debit cards and other PayPal account holders instantly.
It offers merchants the flexibility of serving customers with PayPal accounts while supporting popular credit cards like Visa, PayPal Pro, and American Express.
Stripe
According to Datanyze, Stripe ranks second in the list of most popular payment gateways used worldwide. With over 150,000 live websites and an 18% market share, Stripe is the perfect gateway for businesses looking to offer customers multiple payment options.
Stripe charges a 2.9% + 30c transaction fee for domestic transactions and even offers customized packages for businesses with large sales.
Stripe is a developer-friendly payment gateway. It supports multiple programming languages and is perfect for creating quick and robust integrations. It has a free extension on the Magento Marketplace that helps merchants accept online money in over 135+ currencies.
The Stripe Payments extension allows merchants to introduce Apple Pay, Microsoft Pay, and Google Pay on their stores. It also supports several other local payment methods like Klarna, Alipay, ACH, SEPA, and WeChat pay.
Picking the best payment gateway for your Magento store is one of the most important decisions you make as a business owner. But before you settle for a provider, make sure they tick all the right boxes for your business needs.
Analyze how their service integrates with your Magento store and impacts the overall customer experience. And if you cannot choose one, consider stacking payment gateways for more convenience and a frictionless checkout process.
A secure, efficient, and fast payment gateway can help you improve the checkout experience and boost conversions. Most importantly, it can give you and your customers peace of mind.
Val Kelmuts is the Chief Executive Officer and Co-Founder at Staylime, an ecommerce design and development company headquartered in Redwood City, California. Val has 10 years of experience in custom software development, sales management, and business development. He is the Adobe Commerce sales accredited specialist, Shopify business certified expert, and PMI member.
