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Taking payments online, Payment Gateways explained

Oct 20th 2015

Whether you have an online shop or simply want to take adhoc payments, there are a lot of options when it comes to taking money with your website. We look at some common options

Whether you have an online shop or simply want to take adhoc payments, there are a lot of options when it comes to taking money with your website.

First of all there’s PCI/DSS compliance. This is a data security standard that was put in place by the Credit Card company in order to ensure that if you’re handling and storing credit cards with your site, their data is secure. Payment gateways such as WorldPay, SagePay or Stripe and Paypal get you round this  and in most cases handle this compliance for you, though it’s worth being aware of the basics which you can read about in our article PCI/DSS Compliance explained.

What is a Payment Gateway?
A Payment Gateway is an external service that facilitates the taking of credit card payment details, verifies them, then transfers the money to the vendor’s Bank account.

There are a number of such services, with WorldPay and SagePay being among the most common in the UK and independent Gateways. Many banks have their own gateways too, such as HSBC and Barclays with their service ePDQ.

What do I need in order to get one?
Payment Gateways work alongside a Merchant Bank account, however in order to work with the account, and be set up, in most cases an Internet Merchant ID is needed. Much like the Merchant ID you’ll find at the top of a Chip and Pin receipt when you pay in a high street shop using your card, online transactions require an Internet Merchant ID which is the internet’s equivalent.

This is set up by your bank, and there’s often a setup fee of around £200.

Be careful though, as it can take as long as 12 weeks in order to set up, so if you’re looking to launch a new online shop very soon, speak to your Bank Manager sooner rather than later!

How much do they cost?
They tend to vary, however they tend to be in the region of £20-£25 per month plus in some cases a transaction fee which may be a percentage of the order value.

SagePay for example charges £25 + VAT per month and charges no fees for the first 1,000 transactions.

Anything else I should know?

Check with the Payment Gateway when you get your money. Typically the money is transferred over night, but sometimes it can be several days.

Some Gateways offer a Virtual Terminal which is in effect a Web based Chip and Pin machine, these are useful for taking manual payments or payments over the phone.

Fraud checking is something many Gateways offer, for example Address Verification System (AVS) Check, the system will check the billing address of the credit card provided by the user with the address on file at the credit card company.

What about PayPal and Stripe?
PayPal and Stripe are slightly different from typical Payment Gateways in that it is in effect the Bank Account as well as the transaction Gateway.

They’re both popular as they’re simple to use and set up and most e-commerce platforms support them.

This said, with PayPal many people dislike it as they perceive PayPal as needing a PayPal account, which isn’t always the case.

The big gotcha with PayPal is the fees which for smaller accounts are 3.4% plus 24p per transaction, so that means if you’re charging your client £50 + VAT, your client will pay £60 of which you’ll receive £57.76 meaning PayPal’s charged you £2.24 for the privilege.

Stripe is a hot competitor to PayPal, using a broadly similar model. It’s simple to install and use, has a slick user interface and has a similar though cheaper pricing model.

Want to do the Math yourself, why not try this handy PayPal Fee calculator and Stripe Fee Calculator

When you should consider a Payment Gateway

  • Your business is established and PayPal fees are too high
  • You’re dealing with 100s of transactions so don’t qualify for a better rate with PayPal
  • You’re dealing with high value transaction or Business to Business
  • You can allow up to 12 weeks in order to go live

When you should consider PayPal or Stripe

  • You’re dealing with a Business to Consumer website
  • It’s a new venture and you want to keep integration costs to a minimum
  • You need to be up and running quickly
  • It’s a high transaction site and you’ve negotiated favourable terms