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This blog discusses the various types of payment gateway and their features. Read on to check which type of payment gateway suits you best!
Payment Gateway seems to be a buzzword nowadays. After all, as eCommerce businesses grow at a rapid scale, so does their payment needs. Accepting customer payments securely is one of the topmost priorities of businesses.
However, there are various types of payment gateway. And this blog is all about those details.
Let’s jump right in!
What is Payment Gateway?
A payment gateway (PG) is a technological platform that allows merchants (businesses) to accept payments on their e-commerce stores. It encrypts the customer’s card details so they can be safely communicated to the acquiring bank. Moreover, it informs the customer if their payment is accepted or denied.
A payment gateway allows merchants to offer various payment modes like net banking, UPI, wallets, cards like debit, credit, pre-paid and more. Moreover, it helps them collect payments in different currencies and payment types like recurring billing, EMI, etc.
Now payment gateways can be of different types. However, that depends on the basis of categorization. Now, a PG can be categorized on the basis of:
- The Provider
- The Payment Flow
Having said that, let’s dive into details.
Types of Payment Gateway: On Basis of Provider
Accepting payments as a business can be tricky. The customer’s card details need to be encrypted or tokenized. What’s more, this information has to be safely communicated to the acquiring bank.
A lot of merchants choose to collect customer card details on their own website and share it with the PG(more on this later). But while these tasks may seem like a walk in the park- they really aren’t.
As a result, a lot of merchants choose to employ a payment gateway for an end to end experience.
Ecommerce sales are expected to double from 2017-2021 and reach an all-time high of 4.5 trillion. Evidently, payment gateways will play a huge role in facilitating these payments. However, your choice of payment gateway will dictate your user experience and hence, your payment success rates.
You can choose a payment gateway on the basis of the provider. The two types of payment gateways are:
- Third-Party Payment Gateway
- Bank Payment Gateway
Let us try to understand their features and how they differ from one another.
Third-Party Payment Gateways
In Indian payment gateway market is predicted to touch 1.71 billion USD by 2025. The main reason behind this unprecedented growth is the entry of third party players.
Private players offer a myriad of payment options and provide a superior customer experience. Moreover, they leverage financial innovation and technological superiority to come up with user-friendly solutions. Let’s have a look at some of their features.
Various Payment Modes
Do you know that 50% of shoppers abandon cart if their preferred payment options are not available? Moreover, new payment options are steadily taking over the market previously dominated by cards. For instance, UPI is the most preferred mode of payment in India hitting 1 billion transactions in India.
Third-party payment gateways can help you offer diverse payment options. For instance, Cashfree allows you to accept payment in 100+ payment modes. This includes net banking, credit/debit/prepaid cards, UPI, wallets, etc.
Furthermore, your business model may require recurring payments. For this, you’d need to choose a payment gateway that offers subscription services. Moreover, your customers may need to avail EMI or Pay Later services. You need to ensure that your PG is equipped to handle them as payment options.
Instant Payment Settlement
The settlement cycle is the number of days it takes for the customer’s funds to reach your merchant account. Now a settlement cycle can be instant or standard. Once the customer makes the payment, the amount is received by the PG’s Acquiring bank. Thereafter, the PG transfers the funds to the business’s merchant account.
A standard settlement cycle is usually T+2 days. Here, T signifies the day the customer buys the products and makes the payment. Standard settlement happens on bank working days. However, some third party payment gateways can offer instant settlements. These settlements happen within 15 minutes including bank holidays.
This is one of the biggest advantages of third party payment gateways. They are extremely easy to integrate. In fact, some PGs allow merchants to set up and accept payments within a matter of days.
Third-party PGs come with ready-to-use plugins for eCommerce stores like Shopify, WooCommerce, Magneto etc. Moreover, they have detailed integration guides for all major computer languages like C++, PHP, Python, etc.
P.S. Having a dedicated account manager to help with integration can be a big help for merchants
Reliable Customer Service
Speaking of dedicated account managers, customer support is extremely important as well. Here is one area where third-party PGs take the lead. Most private PGs offer reliable and timely customer support.
It is important to note that 90% of customers cite customer support as a deciding factor in customer loyalty. Moreover, 61% of them might switch the brand if they receive poor customer service. A customer might be even more sensitive when funds are involved. So, having a payment gateway that provides excellent customer support is a must. In fact, some PGs might provide email, live chat and 24×7 customer support as value-added services.
Payment reconciliation is the process of matching payment gateway transactions to the merchant account balance. Third-party PG may provide an easy reconciliation process due to their technologically advanced platform.
Let us explain.
Most bank payment gateways are built on legacy systems that use outdated technologies. On the other hand, a third-party PG may provide a user-friendly dashboard for easy reconciliation. For instance, Cashfree helps merchants reconcile payments by providing the following information:
- A unique transaction number to identify each payment
- The transaction amount, date and time
- Merchant Discount Rate/TDR charges
- Net settlement amount
- The date of settlement
Related Read: Reconciling Your Payment: The Ultimate Guide
Payment Gateway pricing can be divided into two major categories: one-time charges and recurring charges.
The one-time charges usually consist of the infrastructure and onboarding costs. Some PGs call this fee the ‘setup charges’. On the other hand, the Transaction Discount Charge/Merchant Discount Rate (MDR) is the payment gateway charges per transaction.
Now, a lot of third-party PGs offer zero setup fees or annual maintenance charges. The MDR may vary from one PG to another. For more information, check out this guide on Payment Gateway charges.
High Transaction Success Rates
A payment gateway needs to route transactions to a bank gateway to process payments. Now, this routing can either be dynamic or static.
Static routing is when a PG routes the transaction to a particular pre-decided acquirer bank not taking any other factor into account. Alternatively, dynamic routing is when a PG routes transactions by taking factors like success rates of a particular payment mode (UPI/cards/net banking) or downtimes into consideration.
Bank PG may employ inefficient routing. This can lead to a high number of failed transactions. On the other hand, third-party payment gateways like Cashfree use dynamic routing for higher transaction success rates.
Now that we have covered the major features of third-party PGs, let’s move on to their counterpart- bank PGs.
Bank Payment Gateways
Payment gateways provided by banks were the first to enter the business. However, in the early 2000s, third-party PGs entered the scene. Since we have already covered the latter, let’s take a look at the features of bank payment gateways.
81% of customers agree that they need to trust a brand to buy products from it. Bank PG have the advantage of customer trust. Most customers are aware of traditional banks and they rely on them while making transactions.
Limited Payment Options
Bank PGs have limited payment option. Moreover, third party payment gateways have the lead on innovation. As a result of that, they are able to provide products like payment links and instant refunds.
There can be various types of payment gateway. However, there is one feature that is common in all of them: Security. Every PG has to be Payment Card Industry Data Security Standard (PCI-DSS) compliant. It is an information security standard for third party payment processors handling cards from major card companies. It helps regulate credit card fraud and provide a secure experience.
Apart from that, PGs can also have increased measure for risk management systems.
A merchant account is a special business account used by businesses to accept customer payments.
Now, most payment gateways provide a merchant account to customers. The PG act as the master merchant account and all the business become sub-merchant under it.
Alternatively, businesses can create a merchant account by integrating directly with acquiring banks. Here, businesses have to create partnerships with major card schemes and be PCI-DSS compliant as well. This entails lots of resources and is only feasible for large corporations with enormous transactions volumes.
This detailed section helped you differentiate between Bank and third-party PGs.
However, it doesn’t end here. Payment gateways can also be differentiated on the basis of the payment flow.
Types of Payment Gateway: On Basis of Payment Flow
On the basis of payment flow, there can be three types of payment gateway:
1. Hosted Payment Gateway
2. Self Hosted Payment Gateway/ Non Hosted Payment Gateway
3. Off Website Payment Gateway
Let’s try to expand them in detail.
Hosted Payment Gateway
First up is the hosted payment gateway.
A hosted payment gateway is a platform that directs customers to the payment service provider page (PSP) after checkout. This means that the customer is directed to another page for payment instead of staying on your (the merchant’s) website. Once the payment is completed, the customer is redirected to your site. Thereafter, the hosted PG encrypts or tokenizes customer card details and transfer sensitive information to the Acquirer.
Some PSPs offer both hosted and self-hosted payment gateway services. In that case, major PG functionalities like payment modes, settlements, MDR etc remains virtually unchanged. However, there are some major differences between the two.
Let’s have a look at some of the features of a hosted payment gateway.
The biggest difference between hosted and self hosted PG is the ease of integration. A hosted payment gateway allows you to prepare the checkout form with correct customer details and order. Thereafter, the customer is redirected to the hosted payment gateway’s page and completes the payment.
After creating the checkout form, you have to generate a digital signature to validate each transaction. Finally, you have to submit the checkout form. The webhook notifications notify you about the payment and help you reconcile them.
Related Read: Head over to our documentation to learn more about hosted payment gateway integration.
The customer is redirected to a payment page maintained by a hosted payment gateway. This means that they are in charge of securely collecting sensitive information and PCI compliance. This saves the merchant a lot of time and resources on legal expenditures.
Increased Customer Trust
Customers do not trust unknown brands with their payments. However, if a merchant is affiliated with a known PG, customer trust may increase. Small businesses that are just starting out can leverage this to their advantage.
However, as we mentioned before, different types of payment gateway have different pro points. Having said that, let’s have a look at self-hosted payment gateways.
Self Hosted Payment Gateway
In a self-hosted payment gateway, you as a merchant are able to collect transaction details on your website. Thereafter, the PSP takes over for the payment processing.
Now, interestingly, a self hosted payment gateway can be of 2 types.
- Seamless Basic: In Seamless Basic, the customer stays on the merchant’s payment page. However, the customer enters the card details on a form maintained by the payment gateway. The form is simple embedded and the card data is effectively collected by the PG.
- Seamless Pro: On the other hand, in Seamless Pro, the sensitive card details are collected on a form maintained by the merchant itself on their site. Here, the merchant has to securely collect the card data and share it with the payment gateway. For this, the merchant has to be PCI-DSS compliant.
Now that we have that covered, let’s have a look at the features of self hosted payment gateway.
Control over User Experience
Do you know that $1 invested in user experience yields a result of $100? A great UX experience is one the biggest boons of self hosted payment gateway. A merchant has complete control over the UX experience of the customer right from checkout to the payment confirmation.
White Label Experience
Moreover, a self hosted PG ensures a white-label experience. The brand colour, logos, and customer journey remain consistent from start to finish. More importantly, the chances of a customer dropping out are reduced significantly as they are not redirected to another page.
Self hosted payment gateways requires a significantly higher amount of resources. For instance, in Seamless Pro, the merchant has to be PCI-DSS compliant. This requires legal paperwork and manpower. Moreover, integration for self-hosted PGs is marginally harder. Hence, the technical manpower and hours invested in integrations may be higher.
Self hosted and hosted payment gateways collect payments on a website page. But, what about payments collected off-website?
Well, that is a separate type of payment gateway altogether.
Off Website Payment Gateway
Off-website payment gateways can help you collect payments off the website. They use online modes of payment and can be reconciled using the payment gateway dashboard. These payment gateways may support various payment modes like net banking, UPI, wallets, etc.
Let’s try to understand the ways online off-website payment works.
A Quik Response (QR) codes are graphic codes that can help merchants accept payments. A lot of eCommerce businesses use QR codes for COD offers. The customer scans the code and makes the payment using their preferred mode of payment. For example UPI, wallet, net banking etc.
Now, a QR code can be static or dynamic. A static QR code is one pre-determined code for each customer. However, a dynamic QR code is a unique code specific to each order during checkout. Here, payment details like the amount are auto-filled.
With the help of an off-website payment gateway, merchants can create payment links for specific customers. The amount is auto-filled and the customer can click on the link and pay with their preferred mode of payment. These payment links can be shared through emails or social networking apps like Whatsapp.
In fact, payment links are also used as payout links. Here, the merchant can create a payout link and send it to the beneficiary mail or WhatsApp. The beneficiary can enter their bank account/debit card/UPI etc. Thereafter, the amount is credited to the beneficiary’s preferred account/wallet. Merchants can use payouts links for use cases like eCommerce refunds and sending prize money.
Excel Sheet Payments
Another way of off-website payment collection is through excel plugins. This will allow you to send multiple payment requests from your excel sheet. These payment requests can be sent through emails, messages or WhatsApp. You can also choose a PG that helps in the auto-validation of data before sending out payment links.
FAQs on Types of Payment Gateway
What is UPI payment gateway?
UPI payment gateways help merchants to accept customers payments through the UPI mode.
These payment gateways provide easy integration for website and mobile apps. Moreover, UPI payment links and UPI QR codes can be used to collect off-website payment. Merchants interested in collected subscription payments can look for PG that offer the UPI Autopay feature.
A lot of payment gateways offer virtual UPI address for easy reconciliation as well.
Related Read: UPI Payments for Businesses: A Complete Guide
What is the best payment gateway?
Cashfree is one of the most trusted payment gateway in India. It allows merchants to accept payments in 100+ payment modes.
Moreover, it offers hosted, self hosted, and off-website payment gateway options. It has one of the lowest payment gateway charges in India. Its payment products like instant settlement, instant refunds and pre-authorization are used by 50000+ businesses in India to accept payments and make payouts.
What is the cost of payment gateway?
Payment gateway charges can be broadly divided into two types: Fixed cost and Variable cost.
- The fixed cost usually consists of setup fees like merchant onboarding and infrastructure costs. The setup fees can include the onboarding expenses, KYC, physical and document verification.
- The variable cost is the Merchant Discount Rate which the gateway charges per transaction. Now, this cost may vary according to the payment mode used and the volume of transactions. Apart from this, a lot of gateways may charge annual maintenance fees (AMC) as well.
Cashfree offers the lowest payment gateway charges in India. Moreover, it imposes zero AMC or setup fees,
What is the difference between a payment gateway and a payment processor?
In simple terms, a payment gateway is a technology provider that safely communicates sensitive payment information from the customer to the processor. It encryptes and tokenises the financial information for maximum security.
On the other hand, the payment processor handles customer transactions. It communicates the card information from the customer to Issuing or Acquiring banks.
For more information, head over to this blog on difference between payment gateway and payment processor.
Are UPI and IMPS the same?
UPI and IMPS are different payment modes through which a business/customer can make transactions.
UPI (Unified Payment Interface), developed by NPCI, is an instant payment settlement system. It has become the most preferred mode of payment in India. On the other hand, IMPS (Immediate Payment Service) helps in instant interbank electronics transfer.
They both differ in their user-friendliness, transfer time, security and app compatibility.
What is API payout?
Payouts API help businesses send instant payouts to their beneficiaries through a payment gateway.
Payouts by Cashfree help businesses send money through various payment modes like wallets, UPI, bank transfer and debit cards. They work 24×7 and on bank holidays. Most importantly, it is completely automated and can be integrated into the existing product or internal systems using APIs.