How to Choose a Payment Gateway: What to Know and What to Consider
Choosing the right payment gateway is an important decision for any online business. You want your gateway to not just process payments, but also protect sensitive data, settle payments quickly, and deliver a smooth checkout experience that keeps customers coming back. Choose the wrong one, and you could be dealing with hidden costs, abandoned carts, and lost sales.
In this blog article, we’ll discuss what payment gateways do, how they work, and the most important factors to consider when choosing a payment gateway provider.
What’s involved in a payment transaction?
Every time a customer makes a payment, it kicks off a series of actions that happen behind the scenes. We’ll describe the payment process in the next section, but let’s start by outlining the key players involved:
1. The merchant (that’s you)
To accept credit card payments, your business needs to partner with a merchant bank (also known as an acquirer). This bank authorizes and settles payments on your behalf and deposits the funds into a merchant account. Note this account is not the same as a payment gateway, it’s just where your processed payments land before they come to you.
2. The customer
Your customer needs a credit or debit card to make a purchase. That card is issued by a bank (the issuing bank) which essentially lends your customer the money (for credit) or debits their account (for debit) to pay you.
3. The technology connecting you
Between you and your customer are two main technologies powering the transaction:
- Payment gateway: This is the software that connects your checkout system (like an online shopping cart) to the broader payment processing network. It collects and securely transmits your customer’s payment details to the processor.
- Payment processor: Also known as a merchant service provider, the processor handles the behind-the-scenes work, routing the transaction through card networks (like Mastercard or Visa), verifying funds, securing approvals, and ensuring the money reaches your merchant account. In many cases, your merchant bank also acts as your processor, which keeps things simple.
How payment transactions are processed
Now that you know the key players involved, let’s look at exactly how money moves from your customer’s wallet to your business account. Every payment follows the same two stages: authorization (approving the sale) and settlement (receiving the funds).
Here’s how the payment process works:
1. Authorization
This is the part where the transaction gets approved or declined, and it happens almost instantly. Here’s how authorization works:
- A customer makes a purchase using a credit or debit card on your website or POS system
- The payment gateway collects and encrypts the payment data, sending it securely to the payment processor
- The processor forwards the request to the customer’s issuing bank, asking whether funds are available
- The issuing bank either approves or denies the transaction, and sends the response back through the chain
- If approved, the processor notifies both you and your merchant bank and confirms the transaction.
All of this happens in just 1 to 2 seconds.
2. Settlement
Once the transaction is authorized, the funds actually begin to transfer. Here’s how settlement works:
- The issuer sends the funds to your merchant bank
- The money is deposited into your merchant account and the sale becomes ‘settled’.
Some banks offer early access to your funds, even before they receive them from the issuer. In some cases, a portion of your funds may be held in reserve to cover potential refunds or chargebacks.
The settlement process typically takes 1 to 3 business days, depending on your payment provider and banking partners.
Read More: What is Payment Settlement?
What is a payment gateway?
So, where does the payment gateway come in? You can think of a payment gateway as being the online equivalent of a card machine at a physical checkout. It’s the technology that lets businesses accept digital payments securely, whether it’s on a website or a mobile app.
When a customer enters their card details online, the payment gateway:
- Validates the card information
- Checks for available funds
- Securely transmits the data
- Authorizes the transaction.
Payment gateways essentially act as the digital intermediary between your checkout and the payment processor or acquiring bank. They send encrypted payment details to the appropriate banks and networks to get the transaction approved.
Most payment gateways support various payment types, including credit and debit cards, digital wallets (like Apple Pay or Google Pay), electronic bank transfers, and buy-now-pay-later (BNPL) services.
How do payment gateways support businesses?
Payment gateways are essential for any business that accepts online payments, but they do more than just approve transactions. Here’s how they work with businesses to make payments more secure and efficient:
Authorizing transactions
When a customer enters their card details at checkout, the payment gateway securely sends that information to the customer’s issuing bank to check for available funds and get approval. If approved, the transaction can proceed, and if denied, the customer is notified.
Securing payment data
Payment gateways use encryption and tokenization to protect both you and your customers. These technologies make sure that sensitive card information never travels in plain text, which reduces the risk of fraud or data breaches during a transaction.
Enabling order fulfillment
Once a transaction is authorized, the gateway sends confirmation to your business. That signal lets your system know that it’s safe to ship the product, provide access to digital content, or begin delivering a service.
Facilitating settlement of funds
After a sale is complete, the payment gateway helps transfer funds from the customer’s account to your merchant account. This process includes collecting the funds, reconciling transaction records, and depositing the money into your account, usually within 1 to 3 business days.
Helping prevent fraud
Modern payment gateways are equipped with advanced fraud detection tools that monitor transactions for suspicious activity. Features like IP tracking, geolocation, and velocity checks help flag potential fraud before it has a chance to impact your business.
See: Types of Payment Fraud and How Businesses Can Prevent Them
Integrating with business tools
Most gateways can now connect with other parts of your tech stack, including accounting software, customer relationship management (CRM) systems, and e-commerce platforms. This kind of integration helps streamline workflows, automate reporting, and improve operational efficiency.
Benefits of using a payment gateway
Good payment gateways offer numerous benefits to a business, including improved customer experience, simplified operations, and higher conversion rates. Let’s take a look at the benefits of using a payment gateway:
Better customer experience
Today’s customers want a fast, simple, and secure checkout process. Payment gateways make that possible by supporting a wide range of payment methods, from credit cards to digital wallets and more. With a smoother checkout process, you can expect fewer abandoned carts and happier, more loyal customers.
Secure, compliant transactions
Security is one of the main features of a payment gateway. With advanced encryption and tokenization, payment gateways protect sensitive payment data and help your business stay compliant with PCI DSS and other security standards. This reduces your exposure to fraud and helps build trust with your customers.
Access to a global market
Payment gateways can support multiple payment types and currencies, which helps businesses reach customers beyond their local geographic area. This makes it easier to expand into new markets and reach new audiences.
Real-time payment processing
Payment gateways can process transactions in real time, which means you and your customers are instantly notified whether a payment was approved or declined. This reduces delays, supports quick order fulfillment, and helps your business manage cash flow and inventory more efficiently.
Easy integration with business systems
Most modern gateways can easily be integrated with other e-commerce platforms and accounting tools. This keeps your workflows connected and helps reduce manual data entry, saving you time and reducing the risk of errors.
Automation
Payment gateways automate many of the tasks tied to payments, from invoicing to reconciliation. This frees up time and resources so your team can focus on growing your business instead of chasing up payments.
Built-in fraud detection
Many gateways include fraud monitoring tools like IP tracking, geolocation alerts, and velocity filters. These features help detect suspicious activities early to protect both you and your customers from potential threats.
How to choose a payment gateway
Not all payment gateways are made equal – some payment gateways can streamline your operations and support growth while others might lead to failed payments and lost sales. If you’re searching for a payment gateway for your business, here are the most important things to consider:
Transaction fees and pricing structure
Most payment gateways charge fees for each transaction, and the rate can vary depending on the gateway and your transaction volume. Some fees to be aware of when comparing payment gateways are:
- Setup fees
- Monthly fees
- Transaction fees (fixed + % of sale)
- Refund, chargeback, and transfer fees
- Merchant Discount Rate (MDR).
Look for providers that offer clear, transparent pricing, and make sure it fits your business model and volume. If you have high transaction volumes, you may want to go for tiered or volume-based discounts.
Supported payment methods and currencies
Your payment gateway should support the payment methods your customers prefer, including:
- Credit and debit cards (Visa, Mastercard, Amex)
- Digital wallets (Apple Pay, Google Pay, PayPal)
- Local payment methods
- Recurring bills for subscriptions
- Multi-currency transactions.
Customers these days expect payments to be flexible, and if your gateway doesn’t offer their preferred mode of payment, you could lose that customer for good.
Keep Reading: Best Payment Methods for Small Businesses to Accept
Seamless integration and compatibility
Your payment gateway should integrate seamlessly with your existing e-commerce platform, CRM and ERP systems, accounting software, and mobile app. Look for payment gateways with plugins or APIs that support easy, low-code integration.
Customer experience
Any online business knows that the checkout process plays an essential role in making or breaking a sale. Your payment gateway should provide a fast, intuitive, mobile-friendly checkout process with minimal redirects to prevent confusing or losing customers. It should also include saved cards for returning customers and auto-retries on failed payments.
Settlement times
Every business out there values getting paid quickly, and settlement times is an important thing to look at when comparing payment gateways. Things to look at include typical settlement periods (which can vary from 24 hours to 7 days), rolling reserve policies for high-risk merchants, and early access to funds for trusted clients.
Security and fraud protection
Payment gateways should be PCI DSS Level 1 compliant at the very least, but most gateways offer more advanced features. This includes data encryption and tokenization, fraud monitoring tools, chargeback management and dispute resolution, and rolling reserves for high-risk merchants.
Read: Best Practices for Secure Online Payment Processing
Scalability
Not all payment gateways scale easily. Look for one that can handle seasonal or sudden spikes in volume, global expansion into new markets, and recurring payments or subscription models. You want your payment gateway to support your business’s growth, not prevent it.
Advanced tools and analytics
A good payment gateway will offer additional features beyond payments. This might include real-time dashboards and smart reporting, unified views of transaction history, detailed conversion and drop-off data, and refund or payout management. Don’t underestimate the importance of these analytics – they can help you spot friction points, optimize your checkout funnel, and make informed decisions for your business.
Quality customer support
You won’t know how much you need it, until you do. Should anything go wrong with your payment gateway, you’ll want fast, reliable help to prevent any interruptions to your business activities. Look for a payment gateway that offers 24/7 support availability and multiple contact options (e.g. chat, phone, and email). Ideally, you’d have a dedicated account manager who understands your business.
Industry fit
Some payment gateways don’t support high-risk industries like travel or gambling. If you’re in these industries, make sure that the gateway accepts your business type and offers tools tailored to your business model.
See: What You Should Consider When Choosing an Online Gaming Payment Gateway
The payment gateway that grows your sales
ZEN.COM payment gateway is designed with your business and its customers in mind. Our seamless transactions cater to the diverse preferences of today’s consumers, whether they’re on your website or using a mobile app.
Here are some reasons to choose ZEN.COM for your payment gateway:
- Seamless integration: Easily connect with major e-commerce platforms or customize your checkout with developer-friendly APIs
- Global payments: Let customers choose from nearly 100 payment options, including local and international payments
- Multicurrency support: Accept payments in EUR, USD, GBP, and over 25 other currencies for smooth international transactions
- Instant settlements: Access your funds immediately, for better cash flow and operational efficiency
- Advanced security: Protect online transactions with advanced encryption and fraud detection tools.
Explore ZEN’s payment gateway and discover how we can help your business grow and succeed online.
