The right payment gateway for your SaaS or e-Commerce

How to choose a payment gateway for your business

You have your product, your pricing, your marketing all lined up. Your website is complete, or your online store is good to go. The last essential step is to figure out how to actually accept your customer’s money.

We’re here to help you with that.

First, we’ll do a quick overview about what payment gateways are and the exact function they serve. Then we’ll discuss how to choose the right one for your business. After explaining the most important factors to consider when shopping for a payment gateway, we’ll lay out the pros and cons of the top players on the market.

What’s a payment gateway?

To accept payments online, you need to use a payment gateway.

A payment gateway is the main actor in the first step of a payment, the authorization.

The gateway links your shopping cart to the actual payment processor. Payment gateways encrypt the customer and purchase data to ensure privacy, then securely transmits the data to the processor.

Encryption: The web browser encrypts the data to be sent between it and the vendor’s web server. The gateway then sends the transaction data to the payment processor utilized by the vendor’s acquiring bank.

Authorization Request: The payment processor sends the transaction data to a card association. The credit card’s issuing bank views the authorization request and “approves” or “denies.”

Filling the Order: The processor then forwards an authorization pertaining to the merchant and consumer to the payment gateway. Once the gateway obtains this response, it transmits it to the website/interface to process the payment. Here, it is interpreted and an appropriate response is generated. This seemingly complicated and lengthy process typically takes only a few seconds at most. At this point, the merchant fills the order.

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5 things to consider when choosing a payment gateway

Is a merchant account required?

Modern payment gateways, like Stripe and Braintree, are actually also merchant account providers. They’re both services in one. More established payment gateways, like PayPal, don’t provide merchant accounts and also don’t require them for you to accept payments to your business.

So, do you need a separate merchant bank account to use these gateways? No. Should you have a merchant account? We say, YES. In many countries, it’s legally required to have a separate bank account for your business finances and tax records. We’ll cover this topic more in-depth another time.

What’s the payment gateway pricing structure?

There are different ways a payment gateway can charge you money for the service:

  • Initial purchase or setup fee
  • Monthly charge
  • Per-transaction fixed fee
  • Percentage of transaction fee

That said, most payment gateways have consolidated their pricing structures around this general formula:

Cost Per Transaction = Fixed Fee + Percentage of Total

If you’re SaaS or any business poised for lots of growth, you should also consider how the pricing structure scales. When you reach a high volume of transactions, you don’t want to pay a fee on each one. Check if the gateway offers a different structure for high-volume businesses or custom pricing.

Fraud detection and data security included in payment gateway service

Since all payment gateways deal with sensitive consumer data, it’s crucial they have the highest security standards to protect the consumers. Ideally, they protect your business, too. Many gateways employ fraud detection tools to alert you about suspicious transactions.

Examples of gateway fraud detection tools include:

  • Delivery address verification
  • AVS checks
  • Computer fingerprinting technology
  • Velocity pattern analysis
  • Identity morphing detection
  • Geolocation

As for that consumer data privacy, many gateways will help you comply with PCI Security Standards by keeping all card data off your site. As Stripe says, “The simplest way for you to be PCI compliant is to never see (or have access to) card data at all.”

And if you sell in the European Union, make sure your chosen gateway is also compliant the EU’s GDPR.

Off-site vs. on-site payment gateways

An off-site payment gateway navigates your customer off your website to complete the transaction, whereas an on-site service stays…on site. Most modern services are the latter, but some off-site gateways still exist.

The risk of off-site payment gateways is that the transition away from your own checkout could potentially hurt conversion. Some audiences might be wary of a hosted gateway; maybe it’s unfamiliar to them. Or when a gateway navigates away from your page, a buyer might get confused and abandon their purchase.

In contrast, on-site payments provide a frictionless buying experience for the customer. These gateways can be more effort to set up, since they usually involves an API integration. But many e-Commerce services will support these integrations “out of the box,” requiring minimal technical knowledge.

Does the service handle subscriptions?

Obviously this is mandatory for SaaS businesses! And for any other business providing subscription services or using recurring payment plans. Your payment gateway should provide flexible support for subscription payments. That includes automatic recurring billing, pausing or cancelling subscriptions, and reactivating subscriptions.

How the various payment gateways stack up

Stripe

Benefits of Stripe

  • Accepts wide variety of payments: all the cards, multiple Wallets, local payment methods (Alipay, Giropay, Multibanco, SEPA direct debit in Germany) which you can activate as needed, and 135+ currencies
  • Subscription friendly!
  • Top-notch fraud protection included (Stripe Radar and 3D Secure), plus will help you manage disputes automatically.
  • Offers easy integration with iOS, Android, or mobile web apps.
  • Reasonably priced, though tricky! Each card transaction comes with a fixed fee, plus a percentage of the total. The rates will vary, depending on where your business is located. For example, an EU business can expect European card payments to cost €0.25 + 1.4%, and non-European cards to cost €0.25 + 2.9%. The local methods mentioned above have their own rates, too.
  • Offers custom pricing for different business models (e.g.- high average transaction, high refund rates, or enterprise).

Limitations of Stripe

  • No PayPal, so if you want to accept PayPal payments, you’d have to add this separately.
  • Stripe’s brand is widely known in B2B, but maybe less so in B2C.
  • Depending on your business model and location, you may want to study the intricacies of their pricing a bit more closely!

PayPal Payments Pro*

Benefits of PayPal Payments

  • Trusted around the world. The biggest brand recognition you’ll find.
  • Accepts online and mobile payments.
  • Processes card and bank account payments in 6 currencies, PayPal payments in 26 currencies.
  • PayPal Payments Pro requires a bit more set up, but that allows for customization and will let customers finish their purchase on your own site.
  • Data privacy handled for you, so it simplifies PCI compliance.

Limitations of PayPal Payments Pro

  • Not ideal if you have a SaaS or subscription business. For more detail, read our article on the disadvantages of PayPal for subscriptions.
  • The most expensive on the list. You pay a monthly rate of $30, plus 2.9% + $0.30 per US transaction. Non-US transactions are likely higher.
  • Outside of PayPal accounts, accepted international payments are limited, compared to Stripe.

* There’s also the option of PayPal Payments Standard. It processes basic card and PayPal payments, and could be up and running in as little as 15 minutes. But the product information says nothing about ability to accept payments from cell phones and other mobile devices, a potentially huge limitation. Ultimately, we think it’s a bit expensive for what you get. US transactions are a flat-rate price of 2.9% + $0.30, and non-US are even higher.

Braintree

Benefits of Braintree

  • Backed by PayPal. You get the brand recognition and consumer trust of PayPal, plus easy payments from any active PayPal account.
  • Accepts payments from Venmo, the popular mobile payment service in the US. It started as just a friends-paying-friends app, a social digital wallet. But the company was, like Braintree, acquired by PayPal and so recently ventured into the retail space. Venmo could be a valuable benefit if your B2C business is located in the US.
  • Offers basic fraud protection tools to “protect against the most common forms of fraud.”
  • Securely stores and processes card data for you, which simplifies your PCI compliance.
  • Reasonably priced. Each transaction costs a fixed fee of €0.30 + 1.9%. (AmEx is higher.) Larger businesses have other pricing options. If you sell over $60,000 per month, you could get discounted rates. Custom pricing is also available.

Limitations of Braintree

  • Aside from the vast PayPal network, Braintree is limited when it comes to international transactions. It processes fewer currencies and accepts far fewer payment methods compared to Stripe.
  • Advanced fraud protection settings cost extra. Services such as 3D Secure are powered by a third-party called Kount.

GoCardless

Benefits of GoCardless

  • Subscription friendly. GoCardless supports one-off and recurring payments.
  • Cheap! The basic GoCardless service only charges 1% per transaction (with a minimum of €0.20 and a maximum of €2).
  • No fixed fees, monthly rates, or other hidden costs.
  • Strong security encryption and GDPR compliant.

Limitations of GoCardless

  • Only operates with Direct Debit. As you can guess from the company name, they don’t process card payments.
  • For branding control, you need to upgrade your service plan to €50 per month.
  • No mention of fraud detection.
  • GoCardless only supports six currencies for now GBP, EUR, SEK, AUD, NZD and DKK — but is coming to the US soon!

Check out the payment gateways and other integrations that work with Quaderno.

What do none of these payment gateways handle?

Sales tax.

Your US Sales Tax, VAT, GST, or whatever else is not automatically charged by any of these payment gateways. In fact, you must calculate and add the correct amount of tax to the transaction before the payment is processed.

You can automate this crucial step with a tax calculation software that integrates with your payment gateway.

There are several options out there for you, but of course we have to plug our own. Quaderno calculates taxes from around the world, automatically adds the legal rate to your sales, and even issues an automatic invoices to your customers — in their own languages. With a free 7-day trial and a simple set-up, you can see how Quaderno works with any of the above payment gateways to save you time and trouble.

Finance metrics illustration

Piecing together the data you need to file taxes? Imagine all your revenue streams in one place, with complete tax reports at the click of a button. We'll show you how →

* At Quaderno we love providing helpful information and best practices about taxes, but we are not certified tax advisors. For further help, or if you are ever in doubt, please consult a professional tax advisor or accountant.

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