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How to Integrate a Payment Gateway: A Short Guide

Any business that sells online aims at providing the quickest, most secure, and simple-to-use service. It should effectively satisfy the needs of both – the customer and the business and ensure strong protection against frauds, offer a variety of payment options, smoothly integrate with 3d party platforms, contribute to a positive customer experience, and more.

For efficient transaction management made via credit or debit cards, e-commerce businesses embed payment gateways in their platforms. A carefully chosen or developed gateway determines many aspects of the purchasing process from the type of currencies the business will accept to transaction fees, to payment methods, and more.

In this article, you’ll discover how to choose the right payment gateway, what are their types, and how to effectively integrate a payment gateway into a website, an e-commerce platform or an app.

What is a Payment Gateway?

A payment gateway is a vital part of any buying/selling process online. It allows customers to purchase goods and services much easier by enabling the transfer of money from the customer’s account to the seller’s account within a few seconds.

Apart from sending and receiving payment data, payment gateways should ensure that transactions performed are secure. Thus, they encrypt transaction data and use security protocols to pass and receive the data.

For example, as payment gateways transfer the user-sensitive transaction information, they have to guarantee the security of such data as CVV code, card number, card holder’s name, etc. That’s why each solution has to be compliant with the PCI DSS certificate. This implies strong data protection, regular testing, encryption, access control elements implementation, and all the other things that might be required for enhancing security.

How Does Payment Gateway Work

Being a mediator between the customer and the merchant, a payment gateway covers a wide range of financial operations from money authorization when the system verifies that the buyer can pay for the ordered item, to refund in case of a canceled order.

Below is a description of how it works:

  1. The customer confirms the order and fills in the transaction data. Encrypted data reaches the merchant app’s server via a secure connection.
  2. The app passes the transaction data to the payment gateway. The gateway reads the data and verifies it with the issuing bank, e.g. that the transaction performed won’t exceed the buyer’s bank account balance or credit limit.
  3. After that, the encrypted card information is sent to the card’s network for data verification, e.g. Visa, Mastercard, or American Express.
  4. As the card network approves the transaction the data goes to the issuing bank that connects to the acquiring bank to move money. This way, the money from a buyer’s aka issuing bank goes to a seller’s aka an acquiring bank.
  5. When the transfer is complete, the issuing bank sends back the confirmation within the same chain of participants.

The scheme below might seem complicated however the whole process takes just a few seconds.

The Types of Payment Gateways

There are several types of payment gateways to choose from depending on the size and needs of your business. Let’s highlight their pros and cons as well as consider their integration difficulty so that you can easily choose the one for your company.

Hosted Payment Gateway

The hosted gateway redirects your customers from the app to its platform to make the purchase and takes them back when the transaction is complete. Among the most famous of them are PayPal, Amazon Pay, SagePay, etc.

One of the key advantages of such a solution is a simple integration process: for the apps using popular e-commerce platforms (like Magento or Shopify), it might be enough just to install an extension.

In case of having a custom web or mobile application, you might want to hire software developers for help but most of the service providers have detailed guidelines explaining how to integrate their payment gateway. One more significant advantage is that all the security issues are managed by the service provider, too.

What about the disadvantages? Firstly, the redirection of customers to third-party services spoils user experience and decreases conversion as the process becomes more time-consuming and cumbersome. Secondly, in the case of changing the partner, you might lose your client database since service providers keep all the data.

This type of payment gateway is preferable for small and mid-sized businesses since it provides a ready-made, cheap solution that can be simply integrated into other software.

Integrated Payment Gateway

With an integrated gateway, the customers stay at your app and the transaction gets completed without the redirection elsewhere. This type of solution is provided by, MangoPay, SagePay Direct, etc.

The advantages of an integrated over a hosted gateway are:

  • a smoother user experience – your customers don’t need to switch from platform to platform and enter their data several times,
  • enhanced integration with other company’s software, e.g. transactions can be automatically sent to accounting software;
  • better branding and customization to the needs of a certain company, e.g. automatically adding tax;

Along with these pros come cons: you have to take care of fraud protection and users’ data security (PCI DSS compliance) as well as spend more effort on the solution integration process. While some apps can use APIs to integrate a non-hosted payment gateway easily, those running with a custom engine will require technical skills or the help of skilled software development specialists.

Integrated solutions will be a good choice for medium and large companies that focus on their branding and want to provide a smooth user experience.

Custom Developed Payment Gateway

This type of payment gateway enhances features of the previous one providing the best possible level of control over the transactions while requiring deep technical expertise. Using your own custom gateway, you do not need to rely on third-party services and share any data with them. Moreover, it allows adding any modifications and changes you might need.