Payment Gateway Types, Advantages and Disadvantages

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.

Advantages:

Quick and easy set up: Good for small businesses who need a simple one-time payment structure

Disadvantages:

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.

Direct Payment Gateway

Some of the payment processor doesn’t support Instant payment notification. They create profile and deduct the required amount from the user’s credit card on scheduled basis but does not inform the system (who requested for the amount). They just inform that whether credit card is approved or not. So, in this case, system need to make an inquiry on regular interval to the payment processor that whether the required payment is received or not and accordingly provide further service.

These kinds of processor generally ask information on your website and support both fixed and recurring payments

Advantages:

• No redirection to payment gateway.

Disadvantages:

• Generally, does not provide the service (for which you are paying) instantly.
• Require more technical efforts as multiple checking is required.

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.

Advantages:

• 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.

Disadvantages:

Security: Merchants are responsible for PCI DSS compliance and purchasing SSL certification.

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.

Advantages:

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

Disadvantages:

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.

Platform Based Payment Gateway Solutions

These types of payment gateways provide platform to sell digital and physical goods directly from their server. Merchants need to create products or subscription in provided platform and users are redirected via check out button to this platform.

Advantages:

• Improve buyer conversion: Improve conversion by displaying the pricing in the local currency of each shopper.
• Guaranteed rate: Merchants doesn’t need to worry about fluctuations in exchange rates, it will be handles by payment solutions.

Disadvantages:

Customizable: Cannot control user experience as it’s a separate platform.

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.

Advantages:

• 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 “Logo can be can be added to the payment page for custom reassurance”

Disadvantages:

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