Native vs Hosted Payment Gateway Comparison: Benefits, How they work, Pros & Cons and more

Pendahuluan

Payment gateway is one of the most important features of an e-commerce website because for an online business, its total revenue depends on the successful implementation and working of the payment gateway. There are two types of payment gateways that are commonly used in e-commerce sites - native and hosted payment gateway. If you’re setting up a new e-commerce site or planning to upgrade your sites, you should read this article on Native vs Hosted Payment gateway to pick one to use on your site.

Native payment gateway:

What is a Native Payment Gateway?

Payment gateway that gets integrated in the website directly and functions right within the website is known as a native payment gateway. Because this kind of payment gateway remains as an integrated part of the website, it is often referred to as an integrated payment gateway.

There are a lot of popular payment gateways that we, as users, use daily, for example: Stripe, Paypal etc.

Native Payment Gateway Benefits

No redirection:

As the payment gateways operate from your own site, you don’t need to redirect the user to another site to complete their payment. From making the final purchase decision, then making the payment and then to payment confirmation, the user doesn’t get redirected and stays in the same site. It provides a better user experience than using a hosted payment gateway.

Better customization:

A native payment gateway allows the developer to customize the design of the site according to their preference. Developers can also offer personalized payment options. This is another reason why a native payment gateway is better in terms of good user experience.

Rich features:

The developers can integrate exclusive payment gateway features in a native payment gateway according to the needs of the business.

Better conversion:

As the user stays on the same page, the chances of them quitting the webpage is often quite low.

Native Payment Gateway Pros and Cons

Pros:

Native payment gateways provide better user experience.
Allows better customization to match the company's theme.
Offers better engagement.

Cons:

Setting up an integrated payment gateway is hard from a technical point of view.
Developers also need to comply with the industry-standard security.

Hosted Payment Gateway

What is a Hosted Payment Gateway?

When the users are redirected to another third party site to make the payment, these 3rd party sites are named hosted payment gateway. Unlike native payment gateways, hosted payment gateways are not integrated within the website which is why users are forced to make the payment on a different site other than the merchants website.

Hosted Payment Gateway Benefits:

There are a number of reasons why a business can choose a hosted payment gateway to receive payments from users.

Easy to implement:

Unlike integrated payment gateway where the developers have to build every tiny feature from scratch as well as set up a strong security for the gateway, hosted payment gateways are far more easy to implement. Some hosted gateways even let the merchant use their services with minimal to no coding.

Keamanan:

Hosted payment gateways are considered way more secure than a native payment gateway. As a merchant you don’t need to worry about the user’s sensitive data nor do you have to comply with industry standard security (PCI DSS compliance) while and after a hosted payment gateway is implemented.

Hosted Payment Gateway Pros and Cons

Pros:

Easier to set up.
Payment gateway security is better in this case.
Payment gateway takes all the hassles regarding the completion or failure of the payment.

Cons:

Costs recurring money - hosted payment gateways charge recurring money to offer their service to the merchant. They can charge on a per-transaction basis or after a definite period of time.
User gets redirected - when users proceed to checkout, they get redirected to a completely different 3rd party website. This negatively impacts the user experience and though quite rare, results in the user leaving the site without completing the payment.
Less options to customize - The merchant site has very minimal to no control over the looks and options provided to the users on the hosted payment website. Sometimes the hosted payment gateways charge additional fees to offer a customized interface to the users.

How Payment Gateways Work

Working process of a native payment gateway:

Between the event of a user clicking the button to make the payment and the event of the successful completion of the payment, a lot of things happen on or off the screen. And the whole thing needs to be implemented by the developers of the e-com sites successfully to make sure the payment is completed successfully without creating any trouble.

When the user moves on to the checkout page, a list of payment options is displayed to the user. Though the number of payment options differs from site to site also also by geography, most sites allow the user to make payments by Credit or debit card, mobile wallet, bank account transfers, etc.
After users select their preferred payment method and enter details such as credit card number, debit card number, CVV code, the details are sent to the payment processor.
This process is extremely sensitive as users input their confidential data in the website. That’s why before the data is sent over to the payment processor, they are encrypted via standard encryption methods.
In the next step, the payment gateway sends the encrypted information to the payment processor which acts as an intermediate in this process.
The payment processor makes the communication either with the credit or debit card issuing authority (which then connects to the respective bank) or with the bank or with the wallet operator. The aforementioned authorities then verify necessary information, including whether the customer has enough balance in their account or wallet to make the payment, in the case of credit cards, whether the user has enough credit or whether is allowed to make the purchase or not, etc.
The bank also runs some checks to verify whether the payment request is valid or not. If everything goes right, the bank or the authority approves the payment and also sends back a response which contains the status of the payment to the payment gateway.
In case of a successful payment, the payment gateway confirms the order or if the payment has failed the payment gateway either prompts the user to make the payment again or shows a failure page based on the configuration done by the devs.
Immediately after the bank or concerned authority approves the payment, it puts a hold in the fund or money, making it impossible for the user to do anything with the fund. In the final step, the bank or the wallet authority transfers the money or the fund from the user's account to the account of the merchant.

Working process of a hosted payment gateway:

In case of a hosted payment gateway, after customers proceed with checkout, they are redirected to the 3rd party site of the hosted payment gateway, needless to say, the whole process of the payment takes place there. In the meantime, the merchant's website securely sends all the required information about the payment, such as amount, fallback redirection link, etc. to the gateway site.
In the hosted payment gateway’s interface, the user selects the payment method and, quite similar to the working process of a native payment gateway system, the user enters their credit or debit card information which then gets verified by the bank or concerned authority.
Once the bank approves the payment and the payment gateway gets the confirmation, the user is then redirected to the order confirmation or payment completion page. If the payment fails, the user is transferred to another page.
In the last step, the payment gateway receives the money from the user’s bank and depending upon the pricing system of the gateway, it settles the money or funds to the merchant’s account after deducting standard fees.

Kesimpulan

Therefore, while native payment gateways are preferable in situations when you need a flexible approach to payment processing, hosted payment gateways have their benefits when integrated into a complex system or connected to a popular CRM or CMS. A native payment gateway is easier to integrate, allows for more customization and better UX by keeping the payment process on your site but it’s also more demanding in terms of technical implementation and compliance with PCI-DSS. On the other hand, a hosted payment gateway is relatively simple to integrate into the website, is more secure by default and also relieves the owner of the website from handling any kind of user data but this affects and reduces the experience of customers since they are redirected to another site to complete payment. At the end of it all, you will be forced to decide if you are going for a device that can be customized and has the best user interface, or if you are going for a device that can easily be set up and offers the best in security features.

Pertanyaan Umum

What is the difference between native and hosted payment gateway?

A main difference between a native payment gateway and a hosted payment gateway is that in the former one the payment takes place on the merchant’s site while in the latter the user is redirected to a different site to complete payment.

What are the best payment gateway options?

In India, the best payment gateway options includes Razorpay, Paytm, Billdesk, etc.

Native vs Hosted Payment Gateway - which one to choose?

The answer depends on several factors. In short, if you want to easily setup a payment gateway without implementing everything from the beginning, go for hosted, but if you want more customization and more control overall, implement a native payment gateway.