How to Choose the Right Payment Gateway

Written by Nicole Kohler on July 6, 2015 Blog, Taking payments.

If you’re in the process of setting up a store with WooCommerce, at some point you’ll need to enable payments. Accepting payments from your customers isn’t necessarily as easy as flipping a switch and watching the money flow in… but it doesn’t have to be complicated, either. You just need to find the right WooCommerce payment gateway for your business.

With the right payment gateway, you can make it easy for customers to pay for your products. Choosing the right gateway takes a little time, but we’ve found a few ways to narrow down your options and make the process of choosing a little easier.

Let’s explore how you can find the best payment gateway so you can get back to focusing on what matters: launching your new store.

Ready to get add additional gateways to your store? Browse all payment gateway extensions available on the official WooCommerce.com marketplace.

How payment gateways work

If you’re reading this post, you probably know you need a gateway, but you may not really understand why. Or you may not know how gateways actually function.

Let’s break it down. First, a payment gateway is an application that allows a store to securely request payments from customers. When a customer clicks “order,” a payment gateway is what handles all the next steps.

Your gateway:

  • Verifies each customer’s billing information
  • Verifies funds for each customer’s payment method
  • Approves requests, allowing your store to issue a confirmation number
  • Most importantly, gets you paid!

Now that you have a better idea of the “why,” let’s get back to the “which” — as in, which gateway is the best fit for your store.

Your first choice: modern or classic

Payment gateways have come a long way in the last few years. All gateways used to require store owners to apply for a merchant account, a special bank account that allowed directly receipt of credit card payments. Unless you had a merchant account, there was no way for the payment gateway to transmit money into your bank account.

Now, though, there are plenty of payment gateways that don’t require a merchant account at all. These gateways draw funds directly from your customers’ bank accounts or credit cards, validate them, and then deposit them right in your account.

With a modern payment gateway, you don't need a merchant account to accept credit card payments -- just a valid bank account.
With a modern payment gateway, you don’t need a merchant account to accept credit card payments — just a valid bank account.

It’s easiest to call the payment gateways that require a merchant account “classic” gateways, and those that don’t “modern” ones. Of all the payment gateways that WooCommerce supports, there are more classic gateways… but modern ones are definitely increasing in number!

Modern payment gateways: easy setup, but higher fees

A few examples of “modern” payment gateways — those that don’t require a merchant account — are PayPal (all variations) and Stripe.

The biggest perk of these gateways is that you won’t need to change bank accounts or really do anything special to get up and running on the payment side, under most circumstances. Additionally, integrating these gateways with your store is usually a quick process.

However, there are two downsides:

  1. Modern payment gateways usually charge larger per-transaction fees than classic gateways, and
  2. Nearly all of these gateways send customers off-site to make a payment, which can reduce conversions for some stores.

You’ll read more about the off-site and on-site gateway difference shortly, but the fees especially are something to keep an eye on. For smaller stores, these fees are often not a big deal, but as you grow and process more transactions, they can add up very quickly.

Classic payment gateways: more hassle, but better for bigger stores

Many of the gateways you’ll see supported by WooCommerce are classic. Two popular examples are Authorize.Net and WorldPay.

Compared to modern gateways, classic payment gateways can be a bit of a hassle. Not only do they take longer to set up and often require at least minimal technical knowledge due to integration via API, they require a merchant account.

If you do opt for a classic payment gateway, you’ll need to find a bank that offers merchant accounts and apply for one. Because merchant accounts aren’t offered by all banks and the approval time varies by organization, this can sometimes add as much as 4-6 weeks to the setup process.

However, as mentioned above, per-transaction fees for classic gateways are often lower than modern ones. So it’s worth considering how much you’ll pay in the long run, and if a little hassle is worth more than the gateway fees.

You can always switch in the future, of course, but that comes with its own set of considerations.

Consider the benefits of hosted vs. integrated gateways, too

Much like eCommerce platforms, which have hosted and self-hosted options, payment gateways can be hosted off-site or integrated into your store. As you probably guessed, there are advantages and disadvantages to both options.

Hosted payment gateways

If you’ve ever used PayPal, you’re already familiar with a hosted payment gateway. Hosted gateways redirect your customers to the payment processor’s platform to input their payment information.

The biggest perk of this setup is that the offsite provider is responsible for all PCI compliance and data security. This is one less thing for you to worry about, and the major hosted processors will have information on their compliance and security methods available if you need it.

There are some potential downsides, however. In some countries, offsite payment processors aren’t trusted; in others, they’re actually preferred. So you’ll need to know how your audience feels about a hosted gateway before choosing one.

Also, the experience of directing a customer off your website can sometimes feel jarring, and can potentially harm your conversion rates if it’s not a gateway they know and trust.

The bottom line: hosted gateways are easy to set up and are fantastic for new stores, but can potentially hurt conversion rates if customers aren’t familiar with the processor.

Integrated payment gateways

An integrated payment gateway connects to your eCommerce website via the gateway’s provided API. The biggest advantage of this is that customers never have to leave your store to input payment information and submit orders — it’s a smooth, seamless experience.

Integrated payment gateways offer a seamless experience for your customers.
Integrated payment gateways offer a seamless experience for your customers.

Of course, the downside of this is that you’ll need to have the ability to integrate with the gateway you choose. Many eCommerce platforms are set up to smoothly integrate with a variety of gateways via API, but if you choose one that isn’t supported “out of the box,” you might have to do some custom programming to get it functioning properly.

Integration also makes you responsible for securely storing cardholder data and complying with your country’s rules and regulations, including the PCI Security Standards. A lack of security could put your customers at risk, or subject your store to an audit.

The bottom line: gateways integrated via API offer a seamless ordering process, but can be more difficult and time-consuming to set up, and will add one more responsibility to your plate.

Narrow down your options: start by considering pricing

At this point, you should have a good feel for what type of gateway you’d prefer, whether it’s modern or classic, integrated or hosted. Now you can start narrowing down your options, starting with the topic of price.

Nearly all payment gateways have fees, usually per-transaction fees or monthly usage charges. The gateways you evaluate may charge one or both, or may even scale their fees depending on how much you use it.

A 1% per-transaction fee might not sound like much, but it could add up if you’re selling luxury goods. In that situation, you should try to find a gateway that has reasonable fees, or even no monthly cost.

You may also want to consider the purchasing price of the gateway, if there is one. Free gateways are awesome, but they may have higher fees. Alternately, you may not like the thought of paying $199 to purchase a WooCommerce extension, but the monthly fees could be lower, which will save you money in the long-term.

Planning recurring payments? Look for for automatic billing support

If your business will be offering subscriptions or giving customers access to content via paid memberships, you’ll want to check if the gateways you’re considering support automatic payments for recurring plans. If they don’t, your customers will need to renew manually each month, which can be a huge pain.

Just part of our list of gateways that support subscription-based payments.
Some of our gateways that support subscription-based payments.

We have a table of payment gateways that support subscription payments to help you narrow this down.

Note that the gateways are also marked to indicate if they allow changes to payment dates and amounts without canceling and restarting the subscription, which can be helpful for stores planning to offer multiple subscription or membership tiers.

Review the purchasing process in full detail

As you continue to narrow down your choices, try to be conscious of how each gateway will appear on your store, and what kind of experience it will offer your customers.

Think about the number of steps a shopper will have to take to get from their cart to a confirmation screen. If you’re asking too much of them, they might abandon their purchase.

Most payment gateway providers either have a demo on their website, or will be happy to show you a demo if you ask. This is a good way to get an idea of how the process will actually function on a store like yours, what screens customers will see, and what information will be requested.

Integrated gateways often offer you more flexibility than hosted ones, since you can opt for a one-page checkout, multi-page checkout, style form fields as you prefer, and so on — essentially eliminating any potential barriers to purchase, either now or in the future.

Don’t be afraid to start small

If you’re reading this guide, you’re likely setting up a brand new store. You probably don’t have a lot of time or a large budget to put toward the process of accepting payments. And that’s perfectly fine.

Don’t be afraid to start with a simple hosted gateway or pre-integrated option — you can always switch later if you need to. PayPal is one popular option among new WooCommerce users because it offers so many different options in multiple countries, and the off-site options allow store owners to get started quickly, without site integration or the need for a merchant account.

A comparison of some of the different PayPal gateway features.
A comparison of some of the different PayPal gateway features.

Although you’ve likely already heard that switching eCommerce platforms is a pain, the same isn’t necessarily true for gateways. You can always work with a developer to prepare for a transition to a bigger and better gateway behind the scenes, or on a staging site.

You have plenty of things to focus on at this stage, so don’t be afraid to make the choice that fits your budget right now — you can always scale it up later if you need to, once you have more time or resources available.

Accepting payments is a critical step

Adding a payment gateway to your store is a crucial part of the pre-launch process. Once you’re ready to accept payments, you can go full speed ahead toward launch — and if you kept our guide in mind, it will be with the knowledge that you chose the gateway best suited for you.

We hope this guide has been helpful in your search for the best payment gateway for your new WooCommerce-powered store. Have any questions about picking a gateway? Let us know and we’ll get back to you as soon as we can.

Header image credit: Steve Snodgrass

5 Responses

  1. Mikey
    July 7, 2015 at 5:58 pm #

    Great article! Features such as recurring payments or how the refund process works are pretty important.

    For those considering cost, I maintain a spreadsheet on rates to help determine which processors offer the most competitive fees, based on the monthly gross sales: https://www.frogstonemedia.com/blog/payment-processor-cost-comparison/

  2. ImageFinder
    July 9, 2015 at 2:28 am #

    Thanks for the tips, helped us decide which payment gateway suit with one of the project we’re working on!

    • Nicole Kohler
      July 9, 2015 at 3:26 pm #

      Woohoo, awesome! Glad to hear it was helpful 😀

  3. Noman
    July 28, 2015 at 11:15 am #

    Hi Nicole Kohler,
    Very useful stuff 🙂 I’m going to start my first e-commence store.i need your suggestion.which payment gateway will be better for store? I don’t have any idea about integrated payment gateway.thanks

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