What is a Payment Gateway and Why Would I Need One?

PayPal and Google Checkout LogosIf you’re going to sell stuff from your website then you need a means to take payment, and that’s done through a payment gateway.

The best known online payment gateway is PayPal – it’s easy to set up and it’s familiar to millions of people.

And this familiarity is important.

Many people are still reluctant to make payments online because they don’t have the confidence it will work properly. They may be worried they’ll get double-billed or that they won’t be able to get their money back if the transaction goes wrong.

This reluctance is one of the factors that contribute to shopping cart abandonment – where someone wanted to buy something from your site and started the transaction but, for whatever reason, decided against completing it.

There are many reasons for shopping cart abandonment (I wrote more about it here and here) but one of them is, without doubt, related to the level of confidence your customers have at the point they have to hand over some money.

Seeing the PayPal logo (or the logo of another payment gateway that they’re familiar with) will, in many cases, increase that level of confidence because they’ll have seen it before and possibly used it.

There are other payment gateways, of course, with Google Checkout probably being the next best known one after PayPal.

So, for a small business selling stuff online, not only are payment gateways the cheapest and easiest way to offer alternative payment options to your customers, they help to reduce the shopping cart abandonment rate by increasing your customers’ level of confidence in the transaction.

Setting up a payment gateway and how they work

When you set up a payment gateway you need to open an account with whoever you’re going to use. This is the account that payments due to you from your customers are credited to when the transaction is approved.

You then link your payment gateway account to your bank account so you can withdraw the funds to your bank account whenever you want to.

All payment gateways carry out the same function:

They enable you to link your customer to a trusted company that will let them choose their preferred payment method. They then route the transaction to the customer’s chosen credit card company or bank and, finally, they credit your payment gateway account when the transaction is approved.

You’re then able to transfer the balance from your payment gateway account to your bank account. I usually do this once a month because it’s more efficient and it reduces the fees I have to pay (making 1 large transfer once a month is a lot cheaper than making lots of small ones).

Setting up a payment gateway is straight-forward. It enables small businesses to take credit card payments online efficiently and securely, while giving your customers the widest choice of payment options possible.

If you have any questions on setting up or using payment gateways by all means drop me a line.


Martin Malden

About the author: Martin Malden owns Abledragon, a WordPress agency that was established in 2009. Today it serves customers in Hong Kong, Australia and the UK. Abledragon websites are built for today’s Internet, with the mobile user in mind, and are known for security and speed. Successful Abledragon projects.