Types of Payment Gateways for Your Business: A Comparative Guide

Consumer behavior towards the mode of purchase has changed considerably over the years. The e-commerce industry in India, which has grown from US$ 14 in 2014 to US$ 84 in 2021, has given a significant push to online payments. On the selling side lies a majority of merchants who are also willing to start accepting payments online.

All this has placed payment gateways at the forefront of business transformation towards online selling. While there are several payment gateway providers in the country, selecting the right one does require you to dig deeper into the niceties involved. Business aspects like seamless customer experience, high average order value, and payment success rate can be best handled when you know about different types of payment gateways to choose from.

Follow-up question: What should you know about different types of payment gateways to ensure that you select the right one for your business?

(In case you want to know more about payment gateways and how they work, read this guide.)

Let’s get into its answer and more. 

Classification of payment gateways

When you classify anything into certain categories or types, the first thing a layman may ask you is – ‘What’s the basis of classification?’

The same holds true with payment gateways. Technically, there are two bases for this classification of payment gateways:

• Payment gateway provider
• Payment flow

The following table will help you know about different types of payment gateways at a glance:

Let’s dig deeper.

Types of payment gateways based on the provider

• Third-party payment gateways

Third-party payment gateways mainly refer to the ones that are offered by the private players/companies in fintech sector. In fact, the availability of these types of payment gateways can be considered a reason behind the exponential growth of the payment gateway market in India.

Some of the benefits of integrating third-party payment gateways are:

• Supports a wide variety of payment options (For example, Paytm Payment Gateway supports 100+ payment sources like credit cards, debit cards, UPI, etc.)
• Subscription offering for the end consumers to allow merchants to accept recurring payments
• Timely payment settlements to the merchant’s bank account
• Easy of integration via plugins, custom checkouts, or SDK
• Round-the-clock customer support 
• Comprehensive dashboard for easy payment reconciliation
• Competitive payment gateway charges (0% MDR on certain payment options if possible)
• High transaction success rate based on efficient routing mechanism

Related Read: Payment Reconciliation: Definition, Best Practices, and How You Can Do Better

• Bank payment gateway

These types of payment gateways are provided by the established banks and were among the first in the PG market in India before third-party payment gateways.

Some of the features/benefits of selecting bank payment gateways are:

• Reliability and trust amongst the targeted customers
• Easy to create merchant accounts with the help of direct integration with the acquiring bank
• High payment security
• Limited payment options
• Settlement delays

Recommended Read: Is Your Payment Gateway Promising T+2 Settlement? Here’s What They Don’t Tell You

Types of payment gateways based on the payment flow

• Hosted payment gateway

A hosted payment gateway is a platform that redirects consumers to a secure payment page after checkout. This page is hosted or maintained by the Payment Service Provider (PSP).

If you look at the flow here, the customers are first redirected to a payment page that exists beyond the merchant website or app. Post payment completion, it again redirects the customer back to the website or app. In other words, these types of payment gateways act as a third-party service provider enabling merchants to accept payments.

You should also know that the hosted payment gateways encrypt and tokenize customer card details before sending sensitive information to the acquirer. Besides this, some PSPs offer both self-hosted and hosted payment gateways.

Given below are some of the crucial features of a hosted payment gateway:

• Ease of integration and accepting payments
• No need to worry about legal expenses and regulations related to collecting sensitive information and PCI-DSS compliance (the underlying PSP will take care of it all)
• Customer trust in the payment process handled by renowned PSPs, which ultimately helps newly established businesses in growing their sales and profits

You May Also Like to Read: Importance of Selecting a PCI-DSS Compliant Payment Service Provider

• Self-hosted payment gateway

With a self-hosted payment gateway, the merchants can exercise better control over the complete checkout and payment experience of their customers. These types of payment gateway do not require the customers to leave the shopping site or app to make payments. Also, they are highly customizable and allow the complete payment transaction to happen on one page.

Some of the features of self-hosted payment gateways include:

• More control over the customer experience from checkout to payment confirmation
• Facility to provide white-label payment gateway solutions** (this depends on the chosen payment provider)

If merchants select these types of payment gateways, they also need to be PCI-DSS compliant and undergo all the required legal paperwork. Besides this, their integration process is comparatively more challenging than a hosted payment gateway.

• Non-hosted payment gateways

Non-hosted payment gateway, also known as on-site payment gateway, is the one that allows customers to complete the checkout on the merchant page itself. It processes digital payments with the help of APIs and gives full control to the merchant over the payment page UI. It is best suited for your business if you want to deliver a one-page checkout experience. 

But the responsibility to ensure payment security and customer data protection lies on you (the merchant). 

As you can see, different types of payment gateways work differently and have related pros and cons. If you are wondering how to choose from the different types of payment gateways, you need to first understand what your specific business needs are.

Questions you should ask while selecting the right type of payment gateway

When trying to decide which type of payment gateway will be best suited for your needs, ask yourself the following questions and look for their answers:

• How does the chosen payment gateway enhance the customer experience on your website or app?
• Is the payment gateway compatible with the platform of your website?
• Can it handle significant transaction volumes as your business grows?

Once you have got the answers to these questions, the next step is to perform a detailed payment gateway comparison, as suggested in this PG comparison guide.

The bottom line

To select the right payment gateway, you need to think about your business needs primarily and then the extent of control you would like to have over the user experience. If you want nothing but the best payment gateway, opt for Paytm Payment Gateway. 

Wondering what makes it the best payment gateway in India? Read this.

FAQs

Which is the best payment gateway in India?

Paytm Payment Gateway is one of the most trusted and reliable payment gateways that allows merchants to accept payments online and benefit from 0% MDR on UPI and RuPay transactions.

What is the cost of different types of payment gateways?

In general, the cost of payment gateway is defined in terms of MDR or Merchant Discount Rate. Read this complete guide about payment gateway charges to know more.

What is the difference between a payment gateway and a payment processor?

A payment gateway provides the technology required to process digital payments and capture payment details. On the other hand, a payment processor facilitates the transaction between customers and merchants. For more information in this regard, click here.