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Payment Gateway Hosting

Does your business plan include offering its products and services for purchase online? Unless you plan to be the first business in history to accept cat photos and tweets as payment, your site is going to need support for, and access to, a payment gateway.

Why Do You Need a Credit Card Payment Gateway?

If you’re planning on doing business online, it’s essential to be able to accept credit card payments. Credit cards account for 90% of online sales, so if you don’t accept them, you’re losing out on that revenue.

While solutions like PayPal might work for occasional transactions, opening up a merchant account to process your credit card payments can be a more efficient and cost-effective solution for higher-volume online businesses.

How Payment Gateways Work

As the online equivalent to the checkout lane at your local store, payment gateways provide a secure and reliable method for processing online transactions by encrypting customer credit card information as it travels between the customer, their financial institution, and the merchant whose product or service they are purchasing.

Payment gateways are analogous to the checkout counter in a brick and mortar store. But instead of wheeling their cart up to the counter, the customer selects their items, enters their payment details, and then clicks the "check out" button using your site’s ecommerce software.

What happens next is fairly straightforward:

  1. The customer’s browser uses its built-in encryption (generally with HTTPS [HyperText Transport Protocol Secure] protocol) to protect their information as it is sent from their computer to your server.
  2. Your server sends the information to your designated payment gateway server, protecting the information with SSL (Secure Socket Layer) encryption.
  3. The payment gateway forwards the purchase to your bank, again using SSL.
  4. Your bank forwards the information, still using SSL encryption, to the customer’s bank or credit card payment processing agent to verify funds.
  5. The payment processor returns either an authorization or a failure to the payment gateway, based on available credit or funds. If approved, the authorization is added to your daily "take" for processing by your bank at the end of the business day.
  6. The payment gateway sends the response back to your web server, where your ecommerce software either finishes the transaction or rejects it.

All of this takes less than five seconds to occur.

Online Credit Card Payment Solutions

If you’re just starting out online, many hosting providers include support for ecommerce in their basic packages using PayPal as a payment gateway to accept major credit cards. PayPal does charge merchant fees for payment processing, but they are often much lower than those for higher-volume payment processors.

Paypal can seem like an ideal solution because they don’t charge any fees besides the per-transaction fee. However, there are other factors for businesses to consider besides fees. Merchant accounts provide many features missing from Paypal, such as dispute resolution, fraud protection, and security.

PayPal is not an FDIC-insured bank, and isn’t required to follow federal banking regulations. They have the power to freeze your funds and cut off your account access if they suspect fraud, with no way for you to appeal their decision or argue your case. But with a merchant account, you’re using a long-established system backed by the FDIC, and you can choose the manner of any dispute resolutions needed.

In addition, some of your clients and customer may not want to use Paypal, so it pays (literally) to have other options available to them. Being able to accept credit card payments directly on your website instead of sending your customers to PayPal, also makes your website appear more professional.

If your business is well-established and you’ll be processing a high dollar amount in payments each month, you may want to look at more robust, dedicated solutions like Authorize.net or Stripe.com. You can also purchase website hosting directly from some payment gateway companies to create a "one-stop shop."

Depending on your sales volume, you can expect a dedicated payment gateway to carry a monthly fee as well as a standard per-transaction fee. The per-transaction fee is usually a percentage of each transaction plus a predefined dollar amount — for example, they might charge you 2.6% plus 30 cents for each transaction. Other fees may be charged for account setup, support and add-ons.

Getting Payment Gateways Through Your Web Host

Many web hosts will provide the option to process credit card payments as a feature of their web hosting plans. This doesn’t happen automatically when you open your hosting account, but needs to be set up and activated before you can use it. These work like other merchant accounts, so there are often still application fees, monthly fees, and per-transaction fees. Be sure to always get complete information before purchasing a plan from your hosting provider or gateway.

Alternatives to a Credit Card Payment Gateway

Hosted payment gateways are probably the most professional way to accept payments through websites today - but they aren’t required in order to accept online payments. If you aren't going to operate a hosted payment gateway on your website and you still want to take payments online for your products and services, then the primary alternative is a shared credit card payment gateway.

Shared payment gateways take your website visitors off of your website to a payment provider like PayPal or 2CO, who then takes your credit card information, processes the transaction, and then sends your visitor back to your store once the transaction is complete.

A third alternative, and a highly unpopular alternative with most online shoppers today, is to take an order with no credit card required and then follow up by phone to complete the transaction. In an eCommerce scenario, processing payments this way is very inefficient. In the service industries, this may be more practical, although using a shared payment gateway is always preferred over having no payment gateway.

How Does A Hosted Gateway Compare To A Shared Gateway?

As briefly discussed above, there are two types of credit card payment gateways - a hosted payment gateway (where you have a payment service built directly into your website) and a shared payment gateway (payments accepted through Paypal, etc).

The first (and most frequently used) is a hosted payment gateway. Hosted payment gateways usually come included in your hosting package to help effectively and securely process credit cards for online merchants.

If you are an existing brick and mortar retailer, you probably already have an account with a payment processor, and it is very likely they have a solution for your hosted payment gateway needs that directly connects into their system. Before you rush to use a new payment gateway offered by your hosting company, it is recommended you start with your existing vendor.

By comparison, a shared credit card payment gateway is one used by multiple online stores. The most mainstream solution for a shared payment gateway is PayPal, but there are several others on the market (2CO, WorldPay, Google Wallet, Authorize.net) that deserve consideration, too. Many online stores (especially ones new to market) start out using a shared gateway and then evolve to a hosted gateway over time.

While it is very likely that your hosting provider will offer you some form of payment gateway, consult with them hosting provider if you have questions prior to making a decision on a payment gateway for your business.

Credit Card Frequently Asked Questions

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