Payment Gateways Explained: Choose the Right One for Your Store

What Is a Payment Gateway?

A payment gateway is the technology that captures payment information from your customers and securely transmits it for processing.

When a customer enters their credit card on your website:

1. Gateway encrypts the data
2. Sends it to the payment processor
3. Processor communicates with card networks and banks
4. Approval or decline is sent back
5. Gateway displays the result to the customer

All of this happens in seconds.

Photo by Karola G on Pexels

Major Payment Gateway Comparison

Stripe

Best for: Developers, SaaS, subscription businesses, customization

Pricing: 2.9% + $0.30 per transaction

Pros:

• Excellent documentation and API
• Great developer experience
• Extensive customization options
• Built-in subscription billing (Stripe Billing)
• Modern dashboard and reporting
• Supports 135+ currencies

Cons:

• Less brand recognition with consumers
• Customer support can be slow for non-enterprise
• Account stability issues reported by some high-risk businesses

Integrations: Works with most e-commerce platforms, easy to embed

PayPal

Best for: Small businesses, buyer trust, international sales

Pricing: 2.9% + $0.49 per transaction (varies by volume)

Pros:

• Massive brand recognition and buyer trust
• Buyer protection increases conversions
• 400+ million active accounts
• Express checkout speeds conversions
• Strong internationally

Cons:

• Higher fees for lower volumes
• Account freezes and holds (historically problematic)
• Clunky merchant interface
• Customers may prefer not leaving your site

Note: PayPal also offers Braintree for more developer-friendly integration.

Square

Best for: Retail businesses, omnichannel, simple pricing

Pricing: 2.9% + $0.30 online, 2.6% + $0.10 in-person

Pros:

• Seamless online + in-person integration
• Free POS software
• Good hardware options
• No monthly fees
• Instant deposits available

Cons:

• Less customization than Stripe
• Fewer integrations
• Account stability concerns for some business types

Shopify Payments

Best for: Shopify stores (obviously)

Pricing: 2.9% + $0.30 (Basic), lower on higher plans

Pros:

• Native Shopify integration
• Eliminates Shopify's additional transaction fees
• Simple setup
• Access to Shop Pay

Cons:

• Only works on Shopify
• Limited for complex needs
• Powered by Stripe (consider Stripe directly for more control)

Authorize.net

Best for: Established businesses, legacy systems

Pricing: $25/month + 2.9% + $0.30 per transaction

Pros:

• Long track record (since 1996)
• Works with many processors
• Advanced fraud detection
• Phone support

Cons:

• Monthly fee
• Dated interface
• More complex setup
• Less modern developer experience

Choosing a Gateway

Consider Your Needs

Factor	Best Choice
Developer-heavy team	Stripe
Brand recognition matters	PayPal
Online + in-store sales	Square
Shopify store	Shopify Payments
Subscription business	Stripe or Recurly
International sales	PayPal or Stripe
Simple setup	Square or PayPal

Questions to Ask

1. What are the total fees? Include transaction fees, monthly fees, chargeback fees, refund handling
2. Does it integrate with my platform? Native integrations are easier than custom builds
3. What's the payout timing? Standard is 2 business days; faster often costs extra
4. How's the fraud protection? Built-in tools save time and money
5. Can I grow with it? Volume discounts, enterprise features, multi-currency support

Understanding Fees

Standard Transaction Fees

Most gateways charge: 2.9% + $0.30 per transaction

On a $100 sale: $2.90 + $0.30 = $3.20 (3.2% effective rate) On a $10 sale: $0.29 + $0.30 = $0.59 (5.9% effective rate)

Note: The fixed fee hurts more on small transactions.

Other Fees to Watch

• Monthly fees - Some gateways charge $10-30/month
• Chargeback fees - $15-25 per dispute (even if you win)
• International cards - Often 1% additional
• Currency conversion - 1-3% if converting currencies
• Refund handling - Some keep the original fee

Negotiating Better Rates

At higher volumes, negotiate:

• Processing rate reductions
• Lower or waived monthly fees
• Interchange-plus pricing (more transparent)
• Reduced chargeback fees

Typical threshold for negotiation: $50,000+/month in processing.

PCI Compliance

PCI DSS (Payment Card Industry Data Security Standard) is required for anyone handling card data.

Simplifying Compliance

Use hosted payment fields (Stripe Elements, PayPal buttons):

• Card data never touches your server
• Gateway handles PCI-heavy requirements
• You complete a simple SAQ-A questionnaire

Never store raw credit card numbers on your own servers.

What You're Still Responsible For

Even with hosted fields:

• Secure your website (HTTPS)
• Keep software updated
• Use strong passwords
• Protect customer data you do store

Alternative Payment Methods

Buy Now, Pay Later (BNPL)

Services like Klarna, Afterpay, Affirm let customers split payments.

Impact: Can increase conversions 20-30% for larger purchases Cost: Typically 4-6% of transaction

Digital Wallets

• Apple Pay
• Google Pay
• Shop Pay

Impact: Faster checkout = higher conversion Cost: Same as card transactions (included)

ACH / Bank Transfers

Direct bank transfers, lower fees (often 0.8% capped at $5).

Best for: Large orders, B2B, recurring payments Downside: Slower, no instant confirmation

Cryptocurrency

Still niche for most e-commerce. Consider if your audience specifically wants it.

Services: BitPay, Coinbase Commerce, BTCPay Server

Implementation Tips

Reduce Friction

• Use hosted fields that look native
• Support autofill
• Minimize required fields
• Show security badges
• Display clear error messages

Handle Failures Gracefully

• Retry logic for soft declines
• Clear messaging for hard declines
• Suggest alternative payment methods
• Save cart for later

Test Thoroughly

• Use sandbox/test modes
• Test all card types
• Test failure scenarios
• Test refund flow
• Test on mobile devices

Red Flags

Watch out for:

• Extremely low rates (often have hidden fees)
• Long-term contracts with early termination fees
• Leasing hardware instead of buying
• Tiered pricing with unclear qualification

Stick with established providers and read the full terms.

Payment Gateway Setup Guide

Step 1: Choose Your Gateway

Decision factors:

• Platform compatibility (does it work with your e-commerce platform?)
• Fee structure (transaction fees, monthly fees, hidden costs)
• Features needed (subscriptions, international, etc.)
• Technical requirements (API access, customization needs)
• Support quality (important for troubleshooting)

Quick decision guide:

• Shopify store → Shopify Payments or Stripe
• WooCommerce → Stripe, PayPal, or Square
• Need subscriptions → Stripe or Recurly
• International focus → PayPal or Stripe
• Simple setup → Square or PayPal

Step 2: Create Account

What you'll need:

• Business information (legal name, address, tax ID)
• Bank account details (for payouts)
• Business verification documents
• Website URL and business description
• Expected transaction volume

Account approval:

• Most accounts approved in 1-3 business days
• Some require additional verification
• High-risk businesses may face delays
• Have documentation ready

Step 3: Integrate with Your Store

Platform-specific integration:

• Shopify: Native integrations in admin
• WooCommerce: Install payment gateway plugin
• Custom sites: Use gateway's API or SDK
• Other platforms: Check available plugins

Integration steps:

1. Install plugin or add code
2. Enter API keys from gateway dashboard
3. Configure settings (currency, payment methods)
4. Test in sandbox mode
5. Go live after testing

Step 4: Configure Settings

Important settings:

• Payment methods to accept (cards, PayPal, etc.)
• Currency and currency conversion
• Payout schedule (daily, weekly, monthly)
• Email notifications for transactions
• Fraud protection levels
• Refund policies

Step 5: Test Thoroughly

Test scenarios:

• Successful card transactions
• Declined cards
• Different card types (Visa, Mastercard, Amex)
• Mobile payments (Apple Pay, Google Pay)
• Refund process
• Subscription billing (if applicable)

Use test mode:

• All gateways provide test/sandbox mode
• Use test card numbers provided
• Verify transactions appear correctly
• Test error handling
• Don't go live until fully tested

Common Payment Gateway Issues

High Decline Rates

Causes:

• Incorrect card information entry
• Insufficient funds
• Fraud filters too strict
• International card restrictions
• Expired cards

Solutions:

• Clear error messages for customers
• Retry logic for soft declines
• Adjust fraud settings
• Support multiple payment methods
• Clear card entry instructions

Account Holds and Freezes

Why it happens:

• Unusual transaction patterns
• High chargeback rates
• Suspicious activity
• Policy violations
• New account verification

Prevention:

• Maintain good transaction history
• Keep chargeback rates low
• Respond to gateway requests quickly
• Follow terms of service
• Provide clear business information

If it happens:

• Contact gateway support immediately
• Provide requested documentation
• Explain unusual activity
• Work to resolve issues quickly
• Have backup payment method ready

Chargeback Management

Understanding chargebacks:

• Customer disputes transaction
• Bank reverses payment
• You pay chargeback fee (15-25 dollars)
• Must respond within timeframe
• Can win disputes with evidence

Prevention:

• Clear product descriptions
• Good customer service
• Fast shipping and delivery
• Clear return policies
• Transaction receipts and confirmations

When chargeback happens:

• Respond within deadline
• Provide evidence (receipts, tracking, communications)
• Be professional and factual
• Learn from patterns
• Consider chargeback protection services

International Payment Considerations

Multi-Currency Support

Why it matters:

• Customers prefer local currency
• Increases conversion rates
• Reduces cart abandonment
• Better user experience

Implementation:

• Use gateway with multi-currency support
• Display prices in customer's currency
• Handle currency conversion
• Show exchange rates clearly
• Consider currency conversion fees

Regional Payment Methods

Popular by region:

• Europe: SEPA, iDEAL, Sofort
• Asia: Alipay, WeChat Pay, GrabPay
• Latin America: Boleto, OXXO
• Africa: M-Pesa, mobile money

Benefits:

• Higher conversion rates
• Local customer preference
• Reduced friction
• Competitive advantage

Implementation:

• Research local payment preferences
• Use gateway supporting local methods
• Display preferred methods prominently
• Test thoroughly
• Monitor adoption rates

Payment Gateway Best Practices

1. Offer Multiple Options

Why:

• Different customers prefer different methods
• Increases conversion rates
• Reduces abandonment
• Builds trust

Options to consider:

• Credit/debit cards
• PayPal
• Digital wallets (Apple Pay, Google Pay)
• Buy now, pay later (Klarna, Afterpay)
• Bank transfers (for large orders)

2. Optimize Checkout Flow

Best practices:

• Minimize steps to payment
• Show security badges
• Support autofill
• Clear error messages
• Mobile-optimized forms
• Guest checkout option

3. Monitor and Optimize

Key metrics:

• Conversion rate by payment method
• Decline rates
• Chargeback rates
• Average transaction value
• Payment method preferences

Optimization:

• A/B test payment options
• Analyze abandonment points
• Improve error messaging
• Add popular payment methods
• Remove underperforming options

4. Maintain Security

Security essentials:

• Use hosted payment fields
• Never store card data
• Keep software updated
• Use HTTPS everywhere
• Regular security audits
• Monitor for fraud

Conclusion

Choosing the right payment gateway is crucial for e-commerce success. Consider your platform, business needs, transaction volume, and customer preferences when making your decision.

Key takeaways:

• Stripe best for developers and customization
• PayPal best for brand recognition and trust
• Square best for omnichannel businesses
• Standard fees are 2.9% + 0.30 dollars per transaction
• Always offer multiple payment options
• Test thoroughly before going live

The bottom line: Most successful stores offer multiple payment options. Start with one gateway that fits your needs, then add others based on customer demand and conversion data. Focus on reducing friction and building trust in your checkout process.

For more on e-commerce setup, check out our Shopify vs WooCommerce comparison or learn about checkout optimization.