Payment Gateways – your options.
So you have the online store built and ready to launch but is there one simple, yet important thing you have not looked into?
Payments and your payment gateway!
It’s the one thing many people ask about but very few spend enough time researching. It’s odd, considering not only just how important it is but how much it can cost you.
Your payment gateway can make or break your online store. ‘On page’ processing, processing consistency, perceived trust and card acceptance are all factors that can affect how a potential customer will feel about making their purchase, so it’s important to get it right. On your end, transactional costs, ease of account management, and the amount of hoops you have to jump through will vary from provider to provider.
So what are some your options?
Non affiliated payment gateways do not have a working relationship with a bank, meaning they transact independently, depositing the funds into your nominated bank account. These are the simplest to set up and manage as you are only dealing with one account. The two major players in this space are:
Everyone knows about PayPal and there are various views towards it. Without a doubt though, it is one of the largest single processors on the planet, especially as it’s in the same bed as Ebay.
PayPal has a high per transaction cost, a flat base cost plus a variable credit card rate (one for local sales and another for international). For low sales volume stores this may not be an issue but if your store makes a lot of high dollar sales, it will definitely be noticed.
PayPal offers two tiers of account, Standard and Pro –
Standard is what most people will be familiar with for online shopping. Once the purchase is committed, the customer is sent to the PayPal payment page to complete the transaction, meaning that the customer leaves your site to complete the transaction and is (generally) returned to it after the payment is complete.
The basic set up for PayPal is very simple and fast. The downfall of the basic setup is that the customer leaves your website to make the payment, which detracts from the shopping experience to some extent.
PayPal Payments Pro allows for onsite transacting, meaning the customer does not leave your site. Setting it up requires more effort and the running costs are slightly higher. While the customer experience is better by not having to leave your site, the running costs may be a deterrent for many small businesses.
Account management for PayPal happens within PayPal, and you will have to ‘manually’ action funds transfers for any sale made through your PayPal account. This is a bit sneaky if you think that PayPal is undoubtedly making money on your cash as it sits in their system, it’s also a bit of a pain as you have to remember to do it!
The PayPal phone app is clean and simple (making the ‘manual’ transfer a simpler process than it used to be) but does not show any sales reporting.
A side note in regards to using PayPa as a merchant, one that had us abandon it for some time after many years of use, is their ‘dispute resolution’ system. Unlike other providers, PayPal acts as an intermediary between you and the credit card provider if a customer disputes the charge or transaction. While PayPal touts this system as one of its big advantages, it is in fact a massive flaw in that they vet any and all information provided by your business to substantiate your actions before the credit card provider even sees it.
We have found that the PayPal system does not adhere to local fair trade laws, even in the instance where the customer is clearly wrong. Decisions we have seen made by PayPal give the distinct impression that they are protecting their own self interests, rather than complying with government fair trade laws.
PayPal accepts Visa and Mastercard only in Australia as well as payment from PayPal accounts (PayPal to PayPal).
Our experience with PayPal spans back to 2004, when we first started using it. After many years, we turned it off after deciding it was not only more expensive compared to alternatives but also we have lost money on customer chargebacks that were clearly incorrect.
Like PayPal, setting up a basic account with Stripe is very simple, even simpler than PayPal in fact. The Stripe system comes across as having been designed with business in mind first and foremost, unlike PayPal, which even today has the feeling of being a peer to peer payment system.
There is only one Stripe account to worry about (their Enterprise solution is geared to the big boys). Transactional costs are lower than PayPal and in instances of high volume or transaction amounts, the cost difference is noticeable.
Unlike PayPal, all funds transacted through Stripe are automatically transferred to your account on a 3 day cycle, meaning you do not have to worry about manually transferring funds. Also, unlike PayPal Basic, Stripe completes all transactions from within your website, meaning the customer never leaves, which enhances the customer experience.
One catch to using Stripe is that your store will need to have a SSL (Secure Socket Layer) certificate in order to accept payments. The cost of a certificate varies wildly but expect to pay at least $50 a year, if your host does not automatically provide one.
The Stripe phone app is excellent offering a range of easily accessible sales information as well as transfers pending and complete information.
Stripe accepts Visa, Mastercard and AmEx by default.
Bank Affiliated Gateways
There are a large number of bank linked payment gateways available to the online merchant and what’s on offer will vary depending on the country you are located.
In the early days of online transacting, bank affiliated payment gateways were almost the only option until PayPal increased its global reach. Even then, due to continuing ‘issues’ with PayPal that scared off both merchants and customers, bank affiliated gateways were really the only choice. Bank affiliated gateways are linked with a particular local bank to handle the card charges; in Australia for example, PayPal’s Braintree is associated with the National Australia Bank.
Affiliated gateways are more expensive to run and the transactional rates are really no better than Stripe. In general, the gateway provider will charge a fee for handling the transaction and the bank will charge the credit card rates, and possibly more. Depending on the set up, your payment gateway may need to be PCI compliant and this may require a third player (as PCI compliance is complex and costly) who will also charge a fee, either flat yearly, or a per transaction.
Generally applying to use these gateways requires between some and a lot of paperwork, some will even require a business plan! Once set up, you will have a merchant account with the affiliated bank and usually be approved to accept Visa and Mastercard only. Perhaps the one upside the affiliated gateways are that in terms of disputes etc. you will be dealing the your bank locally, which may make things simpler, and faster.
With solutions such as PayPal and Stripe, bank affiliated gateways have become a little redundant and outdated, seeing as they offer not much more other than added complexity and cost. For large enterprises with high transaction volumes, they are still probably the best option but again both PayPal and Stripe offer enterprise level solutions, though we have not investigated the costs associated with the available offerings. For some store owners though, the idea of keeping everything ‘local’ in terms of banking may be all that’s needed to decide on the bank affiliated pathway, but from our experience with having used 2 affiliated and 2 non, the non affiliated makes the most sense.
Last note – Offer options
One last note worth considering – ‘Sealing the deal’ is paramount when it comes to online sales, so you don’t want to lose a sale at the payment stage. Cards can, and are, declined on all systems without reason. Card transactions run through a complex series of checks before being approved, and sometimes a card may be accepted one day, and declined the next! Conversely, a customer may prefer using one payment method over another. Whatever the reason, you want to make sure you have options, so if one payment option is not working, the customer can try again via another.
Our advice for online payments is to offer at least two options. We suggest always offering PayPal, as there are many, many people that trust it and do use it for all their online purchases. It’s also a good idea to offer the ability to allow a customer to pay offline, through a direct bank payment. This can work well depending on who your customers are and can save you money!
Note: Unless stated otherwise, images are not mine.