What Are the Types of Payment Gateway?

Seamless online transactions are essential for businesses, raising the need for payment gateway integrations. A payment gateway serves as an intermediary for a company’s software and financial establishments, guaranteeing high security and efficiency of electronic transactions. Thus, customer payments are processed rapidly while protecting sensitive data. Future Market Insights claims that the online payment gateway market is projected to experience a 9.6% Compound Annual Growth Rate (CAGR), with a valuation of US$ 117.5 billion in 2023 and a projected increase to US$ 293.9 billion by 2033. 

Depending on the payment gateway type, they can provide a range of features and capabilities. Common types cover hosted payment gateways, self-hosted gateways, API-based gateways, and direct payment gateways. Each type varies in terms of integration complexity, customization options, and user experience, allowing businesses to choose the most suitable solution for their online payment processing requirements. In this post, you’ll find out more details about each type of payment gateway integration, discovering which one is the best fit for your business.

What is Payment Gateway Integration?

Starting with the notion, payment gateway integration refers to incorporating a payment gateway into an online platform, enabling secure electronic financial operations. A payment gateway securely transfers vital financial data among a cardholder, issuer, merchant, and acquirer. Its role lies in guaranteeing that the transactions are handled correctly and securely.

Payment process: 

1. When a customer carries out an online, the payment gateway encrypts the transaction data in a safe way to send it to the payment processor
2. The payment processor communicates with the client’s financial institution (bank) to authorize the payment
3. After completing the authorization, the finances are transferred to the commercial account, executing the transaction

In a nutshell, payment gateway integration services enable businesses to accept payments made online, catering to the customers’ needs.

Secure and reliable payment processing is a must for businesses operating in our digitalized reality. Your customers will turn into a devoted user base only with the assurance that their sensitive financial data, such as credit card and private details, are processed with maximum security. A robust payment gateway ensures data encryption, liquidating the risk of fraud and unauthorized access. That’s why, with a market valuation of US$ 154.69 billion, the online payment gateway industry is experiencing a positive rise conditioned by consumer preferences for streamlined and secure transactions, coupled with a high necessity for one-step payment solutions. The market is poised for growth as merchants and consumers increasingly rely on digital strategies to facilitate seamless online money transfers, as the above-mentioned report states.

Moreover, the seamless functionality of different types of payment gateway elevates user experience so that each customer can opt for the preferred method. A convenient and intuitive payment process executed with the highest security sets customer trust, encourages retention, and contributes to a reputation as a trustworthy market player. For modern businesses, efficient payment processing is not just a technical necessity but a strategic element in boosting customer satisfaction, protecting sensitive data, and ultimately driving the capacity of online transactions.

Types of Payment Gateway Integration

Let’s get acquainted with the types of payment gateway integration, as well as analyze the peculiarities of each option.

Hosted Payment Gateways

Hosted payment gateways redirect customers from the commercial website to a secure external page operated by the payment service vendor. Within this option, customers enter their payment data, and the transaction is fulfilled externally, standalone from the website where the purchase was made. Following this process, users get redirected back to the merchant platform. This type delegates the responsibility of payment security to the third-party provider, taking over the trader’s PCI DSS (Payment Card Industry Data Security Standard) compliance adherence.

Examples of popular hosted payment gateways:

• PayPal Standard. PayPal offers a hosted solution where users are redirected to the PayPal site to make a transaction.
• Authorize.Net’s Simple Checkout. This solution by Authorize.Net ensures a hosted payment page for businesses to integrate swiftly.
• Stripe Checkout. Stripe provides a hosted checkout solution that optimizes the payment process for merchants.

Hosted payment gateways are excellent for businesses striving to adopt a hassle-free integration with delegated security responsibilities. Therefore, this option is excellent for those focusing on the ease of use and two-clicks-easy setup.

Advantages

Hosted payment gateways streamline the integration process, necessitating mere technical efforts. They typically offer a straightforward and safe solution for businesses without extensive resources for managing payment security. Moreover, external processing cuts down the chance of sensitive data exposure on the commercial site.

Disadvantages

While security requirements are transferred, the redirection may disturb the user roadmap of seamless payment flow, potentially causing trust issues to arise. It’s also worth mentioning that merchants have restricted management opportunities over the payment page’s customization, and the branding may not smoothly join their platform, in contrast to other types of payment gateways.

Self-hosted Payment Gateways

Self-hosted payment gateways are integrated solutions where the payment processing is carried out on the marketplace’s server instead of reorienting customers to a third-party platform. In this setup, the merchant obtains extended control over the checkout flow while also having the opportunity to adapt the look and feel of their website within the payment procedure. Characteristics incorporate customizing the payment page to match the website design and branding as a whole.

Advantages

Merchants get greater operation opportunities over the user experience and can tailor the payment process to align with their branding. Furthermore, as the payment data is processed on the businesses’s servers, they take care of the client data and security.

Examples of self-hosted payment gateway providers:

• Authorize.Net. A widely employed self-hosted gateway is appreciated for its security features and a range of payment options.
• Braintree. Offers a customizable API for businesses to build their own payment solution while ensuring support for diverse payment methods.
• Adyen. A global platform that provides self-hosted integration, catering to international businesses with varying payment needs.

Self-hosted payment gateways are applied by businesses requiring a high degree of customization and management over the payment process. Nonetheless, they require careful implementation and continuous security techniques to guarantee a safe and seamless transaction experience for customers.

Disadvantages

The burden of maintaining security and the duty of constantly managing compliance lies on the merchant’s shoulders, requiring solid security techniques. Aside from that, the integration process can be more complicated and may require extra development effort compared to hosted solutions.

API (Application Programming Interface) Integration

API integration engages the connection and communication between various software applications via their corresponding APIs. Payment Gateway API integration allows companies to equip their service with payment processing functionalities smoothly. With APIs, developers can set interactions for the payment gateway and their software, allowing data transmission and guaranteeing secure online transactions.

Advantages 

API integration elevates flexibility so developers can align the payment process to meet particular business needs. Besides, API integration streamlines the user journey by embedding payment functionalities directly into the business application or website, with no need for customers to deal with external platforms. Real-time data synchronization, automatic updates, and top-tier scalability are other advantages, contributing to a more efficient and responsive payment processing system.

Payment Gateway API providers:

• Stripe. Provides a comprehensive API that businesses integrate into their applications for secure online payments. 
• PayPal. Offers a range of APIs, allowing the implementation of payment features into the website and a mobile app. 
• NMI. Ensures solutions for processing payments in various industries, facilitating electronic transactions between merchants and financial institutions.

A diverse range of businesses across eCommerce, subscription services, and digital platforms make use of API integration for streamlined payment processing. eCommerce giants like Shopify often integrate with both PayPal and Stripe APIs, enabling businesses on their platform to offer customers multiple payment options and enhance the whole checkout roadmap.

Disadvantages

API integration for payment gateway also comes with some disadvantages you should be aware of. Firstly, security concerns may arise as sensitive financial data is transmitted between systems, bringing in the risk of potential breaches. Maintenance might be challenging as well since updates or changes in the payment gateway API may require adjustments to the integrated system. Besides, you may possibly face incompatibility issues when integrating with diverse platforms or technologies, leading to complexities. You should also consider that dependency on third-party APIs exposes businesses to the risk of service interruptions or changes in the API provider’s policies, influencing payment flow. Last but not least, integration may require additional costs, such as licensing fees or charges for exceeding API usage limits.

Direct Post Integration

Direct post-integration is a method of integrating a payment gateway into an eCommerce platform where the financial transaction is hosted directly on the merchant’s website rather than redirecting users to a third-party payment gateway page. In this approach, the sensitive payment details are assembled and transmitted securely from the customer’s browser to the acquirer without passing through the merchant’s servers. Thus, companies elevate security by minimizing the operation of sensitive data on their side.

In a direct post-integration, when a user initiates an acquisition, the payment gateway delivers a form that is governed on the gateway’s servers. When entering payment details into the form, the customer submits them directly to the payment processor. The authorization process is managed by the payment processor, and the output is delivered back to the trader, eliminating the direct engagement of the merchant’s server in transmitting or processing sensitive payment information. This minimizes the risk of data compromise, in turn.

Advantages

Direct post-integration provides a seamless user experience by keeping customers on the merchant’s site, enhancing trust and brand consistency. It typically applies to web-based transactions, where customers are kept on the merchant’s website during the payment process. In the context of mobile applications, a similar concept called in-app payments” or “in-app purchases” is commonly employed. In these cases, cardholders complete the entire payment process without being redirected to external websites. With minimal effort, merchants can customize the payment interface, reinforcing their brand identity. This approach reduces transaction abandonment as clients navigate a straightforward and familiar payment process. What’s more, direct post-integration is swift, efficient, and secure, as it involves direct communication between the merchant, payment gateway, and issuer. 

What are the use cases and scenarios where direct post-integration is a perfect choice?

Direct post-integration is highly preferred in cases where security is a primary priority. It is the best fit for businesses that strive to decrease their PCI DSS (Payment Card Industry Data Security Standard) compliance scope by reducing the handling and storage of confidential payment data. eCommerce platforms that seek an optimized and convenient checkout flow and powerful security strategies may opt for direct post-integration. This method is particularly great for businesses in industries with strict regulatory requirements or those handling high volumes of transactions, as it helps mitigate the risk of data breaches and enhances payment security.

Disadvantages

Support and maintenance become complex, requiring ongoing synchronization with the payment gateway’s updates. Direct post-integration might also not support dynamic content, hindering the ability to personalize payment pages.

Mobile Payment Gateway Integration

Today, we can observe a shift in consumer behavior, with an increasing number of users selecting to conduct financial transactions using their mobile devices. Global mobile payments are primarily covered by wallets like PayPal, and Apple Pay, with several other alternatives emerging. As of 2022, mobile wallets made up approximately 50% of worldwide e-commerce payment transactions, though the market size for these wallets exhibited notable regional variations. With the adoption of smartphones and tablets, customers value convenient and on-the-go ways to make purchases, pay bills, and transfer funds. Mobile app payments give them substantial flexibility and accessibility that align with the dynamic trends and tendencies of the audience.

A mobile app-friendly payment gateway is optimized for seamless integration into a mobile app and website, ensuring a smooth and responsive payment procedure on such devices. The user interface is designed to be easy to use, offering a delightful experience during the checkout flow. Consumers actively use mobile devices for online activities, so businesses that prioritize mobile-friendly payment gateways can enhance user satisfaction, reduce cart abandonment rates, and win the market.

Advantages

Enhancing user convenience, mobile payment gateways provide swift and secure transactions directly within mobile apps. Seamlessly integrating with various payment methods, this approach substantially extends customer accessibility. The process is streamlined, reducing disruptions and checkout time, and increasing conversion rates. Moreover, the robust security techniques of mobile payment gateways establish trust, safeguarding sensitive information. It’s also vital to mention that mobile payment gateway integration ensures scalability for businesses, adapting to the evolving mobile-centric market.

Examples of mobile payment gateway providers:

• PayPal. A widely used payment gateway with a solid mobile presence, offers convenient mobile payment options.
• Stripe. Provides mobile SDKs and APIs for seamless integration into mobile apps.
• Square. With its point-of-sale solutions, Square extends its services to mobile payments, providing businesses with versatile and mobile-responsive payment processing.

Nowadays, it’s critical for businesses to adopt mobile app-friendly payment gateways and meet customer expectations by focusing on the opportunities delivered by the mobile-centric dynamics.

Disadvantages

Compatibility issues across diverse mobile platforms are one of the potential obstacles, requiring strong technical expertise. Dependence on mobile networks may lead to transaction delays or failures in areas with poor connectivity. Consequently, users may encounter technical glitches, impacting the reliability of mobile payments. And, most important, concerns about privacy and data protection can also contribute to user hesitancy.

Considerations for Choosing the Right Payment Gateway Integration

Selecting among the types of payment gateway integration is a vital decision for businesses aiming to create a secure and efficient online payment system. For this, you should be aware of the key considerations to ensure a correct choice, as well as seamless and reliable integration.

Security and Compliance

In the context of protection and guidelines adherence, PCI DSS (Payment Card Industry Data Security Standard) compliance is non-negotiable. Secure types of payment gateway integration must adhere to these industry standards, which focus on safeguarding cardholder data during transmission and storage. Ensuring PCI DSS (Payment Card Industry Data Security Standard) compliance liquidates the risk of data breaches, instills confidence in customers, and protects sensitive financial data.

Secure Sockets Layer (SSL) encryption is another core part of protecting data within online transactions. The payment gateway must essentially employ SSL certificates to encrypt data transmitted between the user’s browser and the server. Robust data protection techniques, such as tokenization, should also be present to avoid unauthorized access and ensure the confidentiality of customer details.

User Experience

A quick and intuitive checkout process is critical for client engagement and retention, as well as conversion rates. The chosen types of payment gateway integration must set a smooth flow, cutting down the number of steps required to complete a transaction. A user-friendly interface with clear navigation is a direct path to a positive experience.

Make sure that your users are provided with a mobile payment gateway to carry out transactions effortlessly from the convenience of their smartphones. The interface design should adapt seamlessly to different screen sizes, delivering a consistent and smooth journey for users accessing the platform through any gadgets and operating systems – mobile responsiveness contributes to accessibility and customer convenience.

Cost and Fees

It’s important to comprehend the transaction fees for financial planning. Transaction fees may cover a combination of fixed and variable charges per transaction. You should meticulously assess your transaction volumes and opt for a payment gateway with a fee structure that fits your budget and revenue stream’s model.

Beyond transaction fees, businesses should be ready to cover all the expenses involved in the payment gateway integration cost. Depending on the business case, they may refer to setup fees, monthly subscription fees, and additional charges for specific features or services. A transparent pricing structure is crucial to accurately assess the total cost of implementing and maintaining the payment gateway.

Integration Complexity

Integration should align with the existing technical infrastructure of the business. The payment gateway should be compatible with the eCommerce platform, content management system, and programming languages in use. Evaluating technical requirements ensures a smooth integration process without major disruptions.

The complexity of different types of payment gateway directly impacts the time and resources required for implementation. Some payment gateways offer straightforward integration through APIs and SDKs, while others may demand more extensive development efforts. We recommend you evaluate your internal capabilities and allocate resources accordingly to avoid delays.

FAQ

The frequently asked question on payment gateways

What are the 4 types of payment gateway?

Here are four core types of payment gateways: 

• Hosted payment gateways;
• Self-hosted payment gateways;
• API-based payment gateways; 
• Direct post-integration

Each type offers its own set of values and is suitable for various business requirements.

What is the most used payment gateway?

PayPal is a leading payment vendor that facilitates online, mobile, and peer-to-peer transactions, serving as a favored payment option for digital acquisitions on platforms like eBay and Amazon. Experiencing robust revenue expansion, with a growth rate exceeding 20% year-on-year in both 2020 and 2021, PayPal’s success was notably influenced by the challenges posed by the COVID-19 pandemic. According to statistics from Statista’s Global Consumer Survey for 2022, PayPal demonstrated widespread adoption, particularly in countries such as Germany, the United Kingdom, Australia, and Austria.

Is PayPal a payment gateway?

Yes, PayPal is a fully-fledged online payment platform that includes payment gateway services. It enables secure online transactions and is widely used for e-commerce payments.

What is considered a payment gateway?

A payment gateway is a technology that safely enables the transfer of payment details between a customer, a marketplace, and the payment processor. Its key responsibility is to ensure that online transactions are safe, efficient, and accurately processed.

What are the most popular payment gateway types in the USA?

In Statista’s survey of the most utilized online payment brands among consumers in the USA, PayPal became the most popular choice. These findings are derived from a comprehensive online survey conducted in 2023, encompassing responses from 4,330 consumers across the USA. The particular type depends on the business requirements and goals.

What are the most popular payment gateway types in India?

In India, popular payment gateways include PayU, Instamojo, CCAvenue, and Bill Desk, according to BankBazaar. These gateways cater to the peculiar requirements of the Indian market, delivering a rich choice of features and integrations.

Adopt payment gateway integration today and achieve a perfect digital ecosystem where financial transactions are handled with maximum security, flawless user experience, and performance stability. Boost the credibility of your business and increase sales with the seamless payment gateway integration. Schedule a professional consultation with the PLANEKS experts, and we’ll define the optimal payment gateway type as well as the vendor.