Too many choices are not always a good thing. Especially when you have to make a crucial business decision, like choosing the right payment gateway provider. So, what points should you consider in the research phase of choosing a payment gateway provider?
Everyone loves bagels, right? So let’s use the bagel analogy – when you shop for your groceries, choosing 2 types of bagels out of 5 possibilities is relatively easy. However, when you’re faced with two full shelves of them, with 15 different brands and variations, chances are that you will just get tired, impatient, and take the first one that looks “kind of ok”, just so you don’t have to deal with it anymore.
You may get lucky and end up with something you like, but there is a possibility that the choice you’ve just made will turn out to be pretty bad.
It’s just a bagel…
But what if that was your payment gateway? The results could carry far more reaching consequences.
The industry doesn’t make it easy for an online business to choose a proper partner. In-depth research, due diligence, and proper alignment are extremely important.
On one hand you have large corporations that have been on the market for the last 10 or 15 years. These have managed to cover a vast percentage of the industry due to an early start. On the other hand, you have all these fresh and fast FinTech startups that make the older ones look like technological fossils. So, which one should you go for? There are 10 things to consider in your research:
1. Location and Incorporation
Online payment gateway providers will ask you to be incorporated. Usually, you are incorporated in the region where you live and conduct your operations. But that’s not always the case.
To make things simpler let’s discuss two main groups: US based payment providers and European ones.
The simplest path looks like this: your US incorporation links you to the US payment provider and US acquiring bank.
Equally, the European incorporation allows you to become a contractual partner of a European payment provider and the European acquiring bank behind it.
If you have your company registered in the USA, you can certainly connect with a US based processor. However, if the same company wants to work with a European processor and a European bank it will have to incorporate somewhere in Europe in order to make it happen.
Some payment providers have their operations in both Europe and the USA. This allows you to use the payment gateway services in both countries.
2. Business Model and Products or Services
It is very important to make sure that your future payment processor can support your business model. Why go through the entire compliance process just to be rejected?
Fortunately, most providers have a list of businesses they do not support shown on their website. It is always a good idea to look there first, study it and save yourself some time. If there is any doubt or uncertainty, you’ll need to get in touch with the representative of the company to get pre-approved.
There are two major groups of payment gateway providers: the ones that process pure eCommerce business models (also described as low or medium risk), and so-called high-risk processors. High risk refers to a group of businesses which have been recognized as more chargeback prompt due to the specific products or services they provide. These models require more involvement from a payment partner in fraud detection and overall risk management for the merchant to keep both the account and the customer safe while buying online.
Here are some examples of high-risk industries:
Gaming
Gambling
Dating
Travelling
Forex
Adult entertainment, and more.
High-risk processors have more knowledge and a wider range of tools that allow them to keep an eye on transactions from places which are considered more fraudulent in order to protect online shops from fraudulent activities.
Regardless of whether you represent a low-risk model or high-risk model, it is important to make sure that your payment partner is able to offer you additional protection and expertise in regards to fraud detection and chargeback management.
Make sure you establish a relationship with a payment gateway partner that will support your business model. 
3. Pricing and Providers’ Fees
Is your model price sensitive? How much margin do you gain on a single sale? These are the types of questions you need to ask yourself. Being prepared will allow you to either negotiate the rates, or reject the offer if it does not fall in line with your pricing structure.
Price is only an issue in the absence of value.
Certain providers, usually from the FinTech side, offer you fantastic technology and innovative payment experiences that will win you more clients by streamlining and simplifying the user process.
You can definitely negotiate rates, but do remember that great technology and innovative solutions have their cost. Don’t squeeze the lemon too much.
Don’t get overly excited by companies with the lowest fees. They usually post these prices to attract clients, and it may turn out that they are impossible to obtain under certain scenarios or if specific conditions are met. Look for a provider that has a transparent fee structure and no hidden fees in order to avoid bad surprises down the road.
Focus on the REAL cost.
Some fees look great on paper, but why to use them if the conversion rate is terrible? Sometimes the gateway that looked more pricey is cheaper in the end… How come? This is because it often converts better, or has a look and feel that is more attractive for your customers, which makes you sell more and generate more profit in the end.
Always know your numbers and base your decision on the business rationale.
4. Technology
API is the beating heart of every reliable payment system, so choose wisely!
Freedom and flexibility from A to Z during the system integration is what makes the difference. You do not want a payment gateway that forces you to integrate your online shop in one way only – their way.
This is also a great reassurance that such providers are focused on your growth and constant improvement. Choose companies that innovate and disrupt the system by making sure the payment experience is simple, fast and user friendly.
5. Support
It’s like having an insurance – unneeded and unnoticed most of the time, but occasionally unfortunate things happen… Therefore, you have to be sure support on your providers side will work fast and fix the problem on the spot.
There are two support issues that are most hated:
Getting random emails written by “Mr. Robot” from the tech or sales department.
The ticketing system that almost always guarantees that you will be served tomorrow, or the next business day. This is pretty bad when your transactions suddenly can’t proceed and you are put “on hold.”
So, make sure the payment platform is equipped with a very responsive team and an account manager is assigned to your account. If things go well, you will not have to use it at all – but it’s good to know it is there.
6. Reach – Global or Local?
Where will you sell your products?
Local processors, which are connected to local banks, can offer accounts with attractive fees if you process local cards and local traffic only. Yes, that’s a lot of “local.”
Going global may require a different partner (a payment gateway and a bank), and may also come with higher fees. The good news is that it will also come with plenty of other possibilities to support your growth (multi-currency, global reach, variety of cards, settlement currencies, alternative payments, etc.).
7. Security and Safety
Make sure your provider meets all the safety requirements on its side (PCI), while also providing maximum protection for your customers while they are buying online (card storing, token system, 3D secure, Verified by visa, fraud protection tools, etc.).
Your customer’s safety has the same importance as yours. You are putting your money and your work into someone else’s hands – so, make sure you feel comfortable with your choice. You have to trust that your payment provider knows what they are doing, but just in case, study the subject on your own before you close the deal.
8. Payouts and Reserve
Getting paid is important.
In this case, daily or weekly settlements are something you may be looking for. You do not want to go too long without the money but you should also check the cost of the transfer. If the fees are too high, consider getting paid less frequently (bi-weekly or monthly).
Certain acquiring banks take on the wire cost themselves, especially when your volume is significant, some will only charge you few Euros or USD for a wire transfer – but you may also face higher fees. So make sure to ask for this information beforehand!
It’s not unusual for a payment processor or a bank to hang on to some part of your money. This is called the rolling reserve. It usually varies from a very small percentage to up to 10% of your transfer, which is then withheld for a period of 3 to 6 months.
But why is it like that?
Banks want to get to know you and your business, they also need to protect themselves from the possibility of significant chargebacks. They will use this reserve in the event of chargebacks to offset fees in case your revenue is not sufficient enough to cover the cost. It’s an extreme situation but it does happen.
This is a standard procedure and you should not be worried.
Money will be returned to you after a certain period of time. If you grow fast and process in significant volumes, a reserve cap can be put in place. This means that only a certain fixed amount of your money will be kept by the bank as a deposit, regardless of your growth rate in the future.
9. Should I Have One Payment Gateway or More?
As the saying goes, “never put all your eggs in one basket.”
Everything depends on your business model, your revenue, and how aggressive your growth is. If you grow quickly and your volume increases, it may be good to think about adding one or two more processors. It diversifies your risk and gives you an alternative in case something does not work out with one of them.
Having 3 processors is ok, having 5 is not – this, from our experience, can be treated as a rule of thumb.
This is because it dilutes your margin. Gateway redundancy gives you a chance to choose the best provider for a certain type of traffic, and allocate your volume accordingly to an acceptance rate of cards or regions (A/B testing).
10 Listen to Your Gut
It’s all about the overall feeling you have while going into a deal with a payment provider. When it comes to money and starting a new relationship it’s important that you feel good with your choice. Recommendations should always be considered. If a certain solution works well for your friend, partner, or your competitor, it may also work well for you. Recommendations also give additional assurance about the credibility of the payment provider.
Does the Right Payment Gateway Exist?
I would say there is no one universal gateway, which is the best for every online business. However, surely there is at least one gateway, which for your particular business model, location, and incorporation or product, may be better than others.
The key is to find the right solution, which will become not only your payment provider but also your partner in business. Someone once said that banks or insurance companies give you an umbrella when the sun shines only to take it away when rain starts. This is very true, it’s easy to receive “smiles and hugs” when things are good, but a real partner will stay next to you even when things get worse.
Coming back to the essence of our question, your payment gateway needs to be defined by the business model and service or product you sell, the markets you sell to, the cards you wish to use, and of course the price factor you are ready to accept based on your margins.
The best getaway is a combination of multiple factors: technology, experience, ethical values, innovation, security, alignment. They will do all of that the right way, and not only at the beginning but throughout the entire partnership.
Relationships need to be built properly in order to create loyalty. This will allow you to rely on your payment provider not only during sunny days, but also when rain comes.
What do you think about the topic? Is there anything more we should add to the list? Let us know in the comments below!
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