What Is A Payment Gateway?

Payment gateways, also known as online payment processors, are integral to every online store. Without them you wouldn't be able to take payment from your customers - they essentially communicate transaction information between online businesses and their customers.

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Why Do I Need A Payment Gateway?

The payment gateway protects both the Shopify business and the customer by facilitating secure debit and credit card payments (online, and in person if using point-of-sale technology). The gateway ensures that payment data is transmitted securely.

What Do I Need To Consider When Choosing A Payment Gateway?

Location

The first factor you need to take into account when choosing your payment gateway is your location. For a good breakdown of available payment gateways in your region, have a look on Shopify.

Pricing Structures

Cost is the next biggest factor. This will dictate your profit margins and how you price your products. Don't just look at rates per transaction, also look at monthly payments which some payment processors charge. You will have to work out if a higher transaction rate and no monthly costs works out cheaper or more expensive than a lower rate with a monthly transaction fee.

Each payment gateway sets its own pricing - Shopify does not charge a fee to integrate with a payment gateway.

There is no ‘one size fits all’ solution - each gateway has features, benefits and considerations which may better suit a business of a certain size or type. Look at all the providers and evaluate how they work, and see how well each one aligns with your business needs.

Set up time

The time taken to get your payment gateway up and running varies between providers. For example, PayPal can be set up in less than a day, whereas Sage pay can take around 4-5 weeks. Because of this, when setting up your online store, don't leave selecting or setting up your payment gateway for when the site is complete. So what are the options? There are dozens of providers available; in this article we'll take a look at the pros and cons of some of the main players for Shopify merchants of all sizes.

Types Of Payment Gateway

There are three options when it comes to gateways for your Shopify store:

Hosted gateway: Also known as redirect payment gateways, with this type, when a customer makes a purchase, they are taken off your site to the payment gateway page. Once the payment has been completed, they are taken back to your site.

Self-hosted: Payment data is collected on the Shopify site before being sent to the payment gateway in the back end. The payment is processed off site.

Non-hosted: With this option, the merchant collects and processes the payment on the site. This is more common with larger, enterprise businesses as it’s a more technical solution and requires ongoing maintenance and support.

What Payment Gateways Are Available For Shopify?

1. Shopify Payments

If your ecommerce store is on Shopify, their own payment platform is definitely worth taking a look at. It removes the hurdle of setting up a third party provider and is automatically set up to accept the major payment methods.

You will also see your transaction details in your Shopify admin (this is not the case with third-party gateways - they have their own admin areas).

When you use Shopify Payments, you pay the card rate, but you don't pay a subscription transaction fee. Stores that use a third-party payment provider pay both Shopify's subscription transaction fees, and credit card fees charged by their third-party payment provider.

The process to set up is quick - you can get going by just filling out a form.

Payments can take up to 3 business days to reach you. You also get a free card reader too, enabling you to take physical payments!

As a payment gateway developed by an ecommerce provider there are a number of advantages. This includes better integration into your store's backend, and lower transaction rates. Some other features of Shopify Payments include:

  • No Shopify transaction fees (which apply if using a third party provider)
  • Lower costs with an online credit card rate of 2.2% + 20p (Basic plan), 1.9% + 20p (Shopify plan), or 1.6% + 20p (Advanced Shopify plan), and no hidden charges or extra fees
  • Identify suspicious orders with built-in risk tools unique to Shopify Payments
  • Manage orders, payments and payouts directly within Shopify

2. PayPal

We can't talk about payment-gateways without talking about the Goliath that is PayPal. So big is this payment gateway that it has outgrown its parent company eBay to become its own entity. PayPal can be set up in less than a day and has options for free and paid merchant accounts. It also has a great support system should you run into any problems.

PayPal is one of Shopify’s default payment providers. When you open a store, you're given a PayPal Express Checkout account with the email you used to sign up for your Shopify store. Once you set up your PayPal account you’ll be able to collect payments for orders made with PayPal.

You're charged transaction fees each time a customer makes a purchase using this payment method, unless you also activate Shopify Payments. (With Shopify payments enabled, you aren't charged transaction fees on orders for stores located in most countries.)

You’re charged 2.9% + $0.30 of each transaction so you will have to factor that in when you are calculating margins.

It also has mobile optimised checkout, accepts international payments and enables customers to pay you directly through their PayPal account.

3. Worldpay

Set up back in 1989, Worldpay is possibly the 2nd biggest payment gateway platform after PayPal. Worldpay is accessible in nearly 120 countries and they have a helpful support and sales team.

Worldpay has two options when it comes to fees:

  • Pay as you go: 2.75% + 20p per transaction
  • Pay monthly: a fixed monthly payment of £19.95, plus 2.75% on credit card transactions, and 0.75% on debit card transactions

4. Stripe

Shopify's integration with Stripe allows merchants to easily set up payments for their store. It's a popular solution as it integrates easily, has a clear pricing structure and the ability to set up recurring billing and direct debits.

With no set up or monthly fees, with Stripe you pay by transaction:

  • 2.9% and $0.30 per online payment
  • 2.7% $0.05 per in-person payment

5. Klarna

Klarna has helped thousands of merchants allow their customers to take advantage of a 'buy now pay later' purchase model. But how does it work for merchants?

  • Offer your customers the ability to split the cost into 3 interest-free instalments

  • Offer your customers up to 36 months to pay

  • Offer your customers an extra 30 days to pay

It uses a simple 'per transaction' structure which reduces with increased sales volume. This starts at 1.9% and increases with the more risk Klarna assumes. There is also a 20p transaction fee associated with Klarna purchases.

It helps get your customers through the checkout, giving them flexible payment options, at no risk to the merchant. Even if a customer defaults, the merchant still gets the money - the risk is on Klarna.

The benefit to merchants is that having Klarna as your payment solution leads to a 44% increase in orders and a 68% increase in order volume.

Another big advantage is that whether or not the customer ends up paying, Klarna already transfers the money to the merchant for the transaction.

6. Amazon Pay

So many people have an Amazon account nowadays, and this option allows customers to pay on your store using their Amazon details, making it quick and easy for them to buy using a name that they already trust. As a merchant, you can set up Amazon Pay on your active Shopify store as long as you have an Amazon Professional Seller account.

However, their fees need to be carefully considered as they can hammer low volume merchants, and when your customers buy from you using this gateway, it can take a few days to reach your account.

They charge:

  • 2.9% fee plus $0.30 per transaction on website or mobile - this goes up to 3.9% and $0.30 if it’s an international transaction.

  • 4.0% and $0.30 on Alexa smart assistant - increasing to 5.0% and $0.30 for international sales.

  • 2.2% and $0.30 for charitable organisations - or 3.2% and $0.30 internationally.

7. Opayo

Opayo, formerly Sage Pay, is a popular Shopify payment platform in the UK and US.

Instead of charging fees per transaction, you pay a flat monthly fee per number of transactions. This starts at £19.90 for 350 transactions a month.

Learn more about Opayo.

8. Shop Pay Installments

Shop Pay Installments comes from Shopify itself, and is a variation on the Klarna ‘buy now, pay later’ model.

It offers customers the option to pay in full at checkout, or to split their purchase into four equal, interest-free installment payments for orders between $50 and $3,000. There are no additional charges, interest rates, or late fees passed on to customers.

Customers' credit scores aren't affected if they use Shop Pay Installments. However, if a customer doesn't pay their installment, or they make a late payment, then they might not be eligible to make purchases using Shop Pay Installments in the future.

It’s part of Shopify so there are no redirects away from your store. The merchant receives full payment once the order is completed, excluding the fee to use the service

9. Square

Square has risen to prominence in the last few years as a payment processor, for both online and offline payments (using POS hardware).

You can use Square to link your ecommerce store with your bricks and mortar shop, so you can use the dashboard to keep track of inventory in one place. It’s also forward-thinking in terms of its flexibility for merchants - for example, it allows you to accept donations, membership fees, and other transactions like a booking fee when an appointment is made, for example.

There’s no fee to set up with Square, but it is subject to a 2.9% fee per transaction plus $0.30.

Conclusion

So as you can see, there are lots of options to weigh up when selecting your chosen Shopify payment gateway, so ensure you do your research and find out the key items below:

  • Account set up time
  • Transaction fee options and how they affect your profit margins
  • Length of time it takes to receive your payments
  • Protection against fraudulent payments
  • Technical support system.

As always, if you have any questions, please get in touch. We've built over 500 Shopify sites and can bring yours to life.


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