When it comes to payment gateways, it’s pretty much a guarantee that they tend to be confusing to just about everyone!

Just a few quick examples of the confusion that payment gateways tend to cause to start things off:

• The small business owner knows that she needs a great website—but hasn’t given any thought on how she’ll actually conduct and process e-commerce payments online.  “What does it take to get this done,” she asks.

• The successful local sandwich/lunch place wants to add online ordering and delivery capability to their existing website—but they haven’t even considered that adding online payment capabilities really isn’t exactly web design; it’s a bit more in depth than that.

• The design guru you’ve hired to create your new mobile portrait photography service’s website (that just happens to be your cousin-in-law’s nephew) is recommending you use PayPal to collect your sitting fees online as a deposit on the session.  He doesn’t fully understand payment gateways though—PayPal is all he knows how to do and you’re not sure if this is the best way to go or not.

Simple, everyday scenarios like these happen all the time.  “I need to be able to accept online payments on the site—just do what you need to in order to make it happen.”  Sound like something you’ve heard…or perhaps were just about ready to say?

Well, if you’re not overly familiar with how online payment systems, and specifically payment gateways, actually work, please read on.  We’ll try and cover the basics as concisely—but clearly—as possible.

First Up…What Exactly Is A Payment Gateway Anyways?

Simple.  A payment gateway is the link between a website or an online storefront and the owner’s merchant account.  It’s what handles the collection of financial payment information and passes it along—securely—to be processed.  Once processed, the funds are placed within the merchant account at the bank.  Now this is a condensed version of what actually takes place in the whole process (and how long it actually takes to happen), but in a nutshell, it’s what makes online debit and credit card payments possible.  If there’s one thing to remember here, the takeaway is that if you want to accept online payments, you’ll need a gateway to connect the dots and make it happen.

What’s The Difference between PayPal & A Payment Gateway?

Many folks consider PayPal to be a payment gateway—and in a way, it can be—but when you’re just setting up the basic PayPal payment form or PayPal shopping cart on your website, this is not actually a payment gateway.  It does accomplish the task of exchanging funds from one party of the transaction to the other, but technically, PayPal is a third-party payment processor.  In other words, they receive the payment, settle it, and only then pay you (after fees are deducted)—it’s simpler for some, but it also removes a major degree of control and neutrality from the overall payment process.  The takeaway is this:  There are pros and cons of PayPal—and we’ll discuss them in detail a bit later—but the basic PayPal setup is not really a payment gateway; there are major differences.

Starting to see that payment gateways are a complex topic, and by all means, a component that we all need to understand as much as possible about in order to run a great E-commerce website?  Okay then, we’re out of time for today, but as soon as you’re ready, be sure to check out Part 2 of What You Need To Know About Payment Gateways.

It’s always a good thing to know that you have choices!  With that said, choosing the best online payment processing solution for your website can be a complicated decision to make.  Let’s take a look at two of the most popular options—Authorize.net and PayPal.

The 30 Second Version…

Using Authorize.net as a payment gateway will make your site look more professional and it scales really nicely with even the largest e-commerce shopping cart deployments.  PayPal is generally more complex to integrate and use, but it does offer a baseline solution to those just offering one or two products for sale on their website.

But There’s More To The Story!

First of all, we need to discuss exactly how both of these systems work.  Authorize.net, a payment gateway, provides the integral link between your website, your customer’s credit card, and your merchant bank account.  You’ll still need to have a traditional merchant account to use it—it’s just what enables your traditional merchant account to work with your website.

On the other hand, PayPal is a third party payment processor.  No merchant account is required on your behalf—they accept just accept payments directly from your customer, take their percentage and allow you to withdraw the remaining funds from your PayPal account at your convenience.

Side-By-Side Benefits & Disadvantages:

Authorize.net

Payment gateway that connects your website’s e-commerce software to your credit card merchant account.

Fees:

Per quote.  Using a payment gateway and a merchant account will involve both transactional fees and monthly fees.

Benefits:

• Offers fraud protection.
• Allows you to use the merchant bank of your choice (or your existing merchant account) and receive all of the benefits of doing so.
• Simpler & fewer steps for the customer to complete a transaction.
• Plug and play integration with most top line e-commerce software.
• Negotiable fee structure becomes more and more attractive for higher volume sellers.
• Many customers are more apt to trust merchants with their own merchant accounts (because of the requirements merchants are obliged to abide by).

Disadvantages:

• Certain financial requirements (such as having good credit) are a must for being approved for a merchant account.

PayPal

3^rd party processor collects payments on your behalf for a fee.

Fees:

There is no monthly fee to use PayPal, just a per transaction fee.  This amounts to $0.30 plus 1.9 to 2.9% of the transaction amount.

Benefits:

• Offers fraud protection to both buyers and sellers.
• Gives your customer a trusted name to process their payments—those familiar with the service can assume that PayPal will stand behind them in specified circumstances.
• There are very few restrictions on who is allowed to create an account and begin accepting payments.

Disadvantages:

• Processing a customer’s payment through PayPal adds an extra step to the checkout process—and the opportunity for the customer to click away from finishing the transaction.
• Extra steps are required to claim, transfer, and account for money that’s been paid to you.

In the end, we definitely recommend going the Authorize.net route whenever possible.  You’ll certainly benefit from the professional image that corresponds with its seamless integration into your website’s e-commerce platform!

Paypal is a popular way of sending and receiving money on the internet. It can be used by itself, or as a payment gateway/merchant account your website. While we don’t think that Paypal is the best option for a full-blown, professional shopping cart, it is a good option if you want to get your products on sale on the web, and fast.

To sign up for a Paypal account, click on this banner:

The Paypal website will walk you through the process of setting up an account that will enable you to take Paypal and regular credit cards online.