What Is a Hosted Payment Gateway?

If you have an online store, there are several ways to handle payment processing—including the choice between a hosted payment gateway and a self-hosted payment gateway. To make an informed decision about the best type of global payment gateway for your e-commerce business, it’s important to understand:

What is a hosted payment gateway?
The different kinds of hosted payment gateways
How to choose the most appropriate payment gateway provider for your business

Hosted Payment Gateways Explained

In an online purchase, the payment gateway facilitates the flow of securely encrypted transaction data between merchants and customers, in communication with all of the other institutions involved in the transaction process:

The merchant’s payment service provider (PSP)
The merchant’s acquiring bank
The card networks (Visa, MasterCard etc.)
The customer’s card issuing bank

After the transaction is authorised by the other parties, the payment gateway authenticates the transaction and the amount is collected for later transfer to the merchant’s business bank account.

In order to allow customers to complete the payment process, the merchant can:

Send the customer to complete the entire transaction process on a separate website, from where they are redirected back to your website, OR
Collect the payment data on their own e-commerce website and forward it to a payment processor for authorisation and collection
Collect the payment data on their own e-commerce website and authorise and collect the funds directly through an acquiring bank

Wherever the customer data is collected, that web host is responsible for keeping the customer data secure and providing technical support when problems arise. In Europe, the e-Commerce Directive and Digital Services Act describe the legal responsibilities of e-commerce merchants who sell goods and services online. Because of the ethical, legal and technical burden associated with online sales, the choice of a host (you or someone else) is an extremely important decision.

Three Main Kinds of Hosted Gateway

Hosted Payment Gateway

A hosted payment gateway is an online payment gateway that is hosted on the website of an external payment service provider such that the entire checkout process happens off the merchant’s website. Examples of hosted payment gateway providers include aggregate merchant account service providers like PayPal, Amazon Pay, Unicorn Group, and Opayo (formerly Sage Pay). Because the payment process in a hosted payment solution happens elsewhere and no payment details are stored on your website, you don’t have to worry about PCI-DSS compliance or providing technical support.

Pros

For merchants, hosted payment gateways offer a secure payment method with minimal fuss. For customers, they provide a familiar, reputable checkout process that they can use with their existing account or the debit or credit card of their choice. Most hosted payment gateways accept international cards and perform currency conversions automatically, allowing you to sell your products to customers around the world.

Cons

The major drawback to a hosted payment gateway is that it takes the customer offsite—interrupting the purchase process and increasing the likelihood of cart abandonment. As your logo and site name won’t appear on the checkout page, using a hosted payment gateway could also undermine your customers’ trust and lead them to question whether the checkout page is genuine.

Large-scale businesses will also find that the fee structures of hosted payment gateway providers are far more expensive than the lower per-transaction fees associated with a dedicated merchant account and integrated payment gateway. Generally, hosted payment gateways are most suitable for individuals, very small businesses and startups.

Self-Hosted Payment Gateway

Self-hosted payment gateways (also known as non-hosted payment gateways or integrated payment gateways) are often available from the same providers as hosted gateways but the checkout process is integrated into the merchant website.

Pros

A huge advantage of integrated gateways is that the merchant can add their own branding to the checkout page and customise the fields. For the customer, the advantage is that they can complete the entire transaction on your site—improving the customer experience and reducing the likelihood of cart abandonment.

Cons

The major drawback, however, is that payment information is stored on your server rather than the host’s server—making it necessary to ensure PCI-DSS compliance on your end. You also won’t have access to an external technical support team and will have to fix any problems yourself.

API-Hosted Payment Gateway

The third option is an application programming interface (API)-hosted payment gateway. In many ways, API-hosted payment gateways offer a best-of-both-worlds approach to payment processing because the payment gateway is integrated into the merchant website (complete with branding and customisation) but you still enjoy the benefits of third-party technical support plus merchant services if you get your payment gateway through a merchant account provider.

API-hosted payment gateways are usually integrated into the merchant’s checkout by way of a plugin or software module that’s ready to paste into the code of your existing site and can then be branded and customised. Unicorn Group, for example, has API modules for all of the major shopping carts and can create software modules for new e-commerce platforms on request.

Pros

API-hosted payment gateways typically offer multiple payment options and enhanced security with customisable fraud protection, chargeback mitigation, and round-the-clock technical support. In addition, you can usually set up more complex transaction types such as deferred payments, recurring payments and loyalty rewards points. For customers, API-hosted payment gateways offer a seamless checkout experience, increasing conversions and trust.

Cons

As an API-hosted payment gateway allows you to accept online payments on your website’s checkout page, you will need a secure socket layer (SSL) certificate and other measures to ensure full PCI compliance to prevent data breaches from occurring. For merchants who choose an API plugin attached to a dedicated merchant account, you may also need to pay a setup fee and monthly service fees. However, the per-transaction rates will be far lower than what you would pay with a hosted payment gateway.

Choosing the Best Payment Gateway Provider for Your Business

Whether you’re a novice blogger or a multinational company, there will be a payment gateway to fit your needs. The key is to find the gateway provider that best suits your business model and can scale with you as you grow.

For an online store that’s just getting started and isn’t ready to take on the responsibility of PCI compliance, a hosted payment gateway is the simplest and easiest way to process payments. However, for serious businesses who want their online stores to look professional and offer more advanced payment options, an API-hosted payment gateway connected to a dedicated merchant account is by far the best solution. Unicorn Group can provide any of these options and tailor them to the needs of your business.

No matter which method you choose, ensuring secure transactions is one of the most important steps you can take for your ecommerce business, and your customers will thank you.

A.J. Almeda E-Commerce Expert

A.J. is an e-commerce expert with an emphasis on digital marketing and payment processing with 15 years of industry experience. He combines this experience with an in-depth understanding of online retail and public relations to help other businesses grow and succeed.