Malaysia has the highest internet penetration rate in Southeast Asia. More than 80% of its population has access to the internet. The Malaysian government has introduced initiatives and programs such as the National Fibersation and Connectivity Plan (NFCP), and the Digital Economy Blueprint to support growth in the digital and e-commerce sectors. As a result, e-commerce is rapidly growing in Malaysia; in fact, it is expected to reach a value of US$30 billion by 2025.

Running an online business in today’s world without a reliable payment gateway is nearly impossible. Payment gateway integration is essential for any business, but what exactly does it do and why is it so important to the success of e-commerce merchants?

What is a Payment Gateway?

In simple terms, a payment gateway is a platform that enables businesses to accept online payments through various methods, including credit/debit cards, e-wallets, mobile payments, and more.

Merchants can avoid the hassle of directly connecting to each payment provider and trust the payment gateway provider to handle behind the scene operations, such as acquirer bank and card network integrations.

A payment gateway also ensures the security of the payment process through encryption, tokenization, and fraud detection. This protects sensitive customer data and minimizes the risk of chargebacks and other fraudulent activities.

How does a payment gateway work?

A payment gateway is an essential component of doing business in the e-commerce industry, acting as a middleman that facilitates the transfer of funds from customers to businesses.

Its primary function is to help merchants verify the validity of a customer's card. This process is done in a secure environment, without contact between customer data and the merchant website. Thereby, businesses don’t have to bear the risk of storing card information.

The payment transaction follows a specific sequence. First, the payment gateway validates the customer's card details and their ability to cover the purchase. Once the card is approved and the payment is processed, the seller is notified to confirm the transaction. Finally, merchants will be able to receive the fund in their account on the payment gateway and transfer it to their bank accounts.

By streamlining the payment process and minimizing risks, payment gateways are an integral part of the e-commerce landscape.

Why are payment gateways important for your business?

With such a high demand for online shopping nowadays, especially in a rapidly expanding online market like Malaysia’s, customers will likely be more choosy over time with online payments.

To satisfy the customers, you need to find a solution that can meet all of their requirements, which is why a payment gateway is essential for businesses to thrive in the digital economy. Here are the 3 main benefits of a payment gateway:

1. Convenience

The average cart abandonment rate is approximately 70%, and 8% of this is due to issues emerging in the payment process. These issues could be from a complicated procedure, extra fees, or lack of payment methods.

A payment gateway is a one-stop solution for all your customers' payment needs. It facilitates the checkout experience by providing buyers with multiple payment options, including credit cards, debit cards, digital wallets, and more.

Without a payment gateway, payment options are usually very limited. This can be an inconvenience for customers. By integrating one, customers will have the option to pay anytime, anywhere, and with their preferred payment method.

This flexibility can enhance the customer experience and improve satisfaction, leading to repeat purchases and positive reviews.

2. Seamless payment processing

A long and complicated checkout process is the reason customers give up on their shopping cart. With a payment gateway on your website, customers can choose to save their card (using card tokenization) for future purchases, allowing them to complete transactions in one click. In addition, payments can be completed within the website (no redirection), providing a seamless payment experience for your customers.

Moreover, by having a payment gateway that enables you to customize the checkout flow, you can also enhance customer satisfaction, build trust, and earn more positive feedback. This is a valuable opportunity to differentiate yourself from competitors and improve the overall user journey. To learn more, check out our article on personalization trends in e-commerce.

3. Better security

The number of e-commerce scams reported by consumers in Malaysia from 2020 to 2022 increased by 63%, bringing the number of cases up to 9,570. Partnering with a payment gateway with comprehensive security and fraud prevention measures is integral in protecting businesses and customers.

To build a secure and reliable payment environment for customers, businesses need a payment gateway that has the following:

1. PCI DSS compliance

2. 3-D Secure protocol

What does this mean in simple terms? To transmit, process, or store card information, PCI DSS compliance is legally required as it protects customers’ sensitive data from being stolen and misused.

On top of that, to minimize fraud risks, merchants can enable OTP authentication to better secure transactions, a feature that is possible with 3-D Secure.

Obtaining these two features can be a lengthy and expensive process for businesses. Hence, most businesses partner with a payment gateway as it’s more convenient. This way, they can ensure that cards are handled securely. It also provides merchants with the ability to diminish chargebacks/credit card fraud.

If you need more information regarding these security features, please do not hesitate to contact us.

What are the different types of payment gateways?

For small businesses:

Local bank integration

Small merchants can choose local bank transfers as the primary payment method for their customers. This way, customers will be redirected to the bank’s site to complete the payment.

This payment option can, however, be limited depending on banks. Furthermore, it does not allow customers to save details for repeated purchases. Thus, it might be inconvenient for the customers to input the data every time.

While this type of payment gateway may be quick and easy to set up, it is not recommended for businesses looking to scale their operations. Especially, it’s not suitable for e-commerce merchants managing a high volume of transactions, which requires a more robust system.

For medium and large-sized businesses:

Hosted payment page

A hosted payment page (sometimes referred to as a hosted payment gateway) is a page that is located outside the merchant’s website. Customers are redirected to the page and asked to fill out payment details and complete the transaction.

As a hosted payment page is a service offered by payment gateways, by default, it is highly secure and complies with the PCI standards. (If you want to learn more about PCI compliance, subscribe to our upcoming article.)

Having a hosted payment page may seem like the way to go. However, if you’re looking for full control over the checkout experience and full visibility over customer behaviors, an API integration would be a more suitable option for you.

Self-hosted payment gateways

A self-hosted payment gateway will allow your customer to complete the transaction on-site without page redirection. With this method, the checkout process will be faster and businesses will be able to design and customize the user’s experience.

The disadvantage of this is that businesses will not have a technical support team as they would with a hosted payment page. As a result, they will have to deal with technical issues on their own, which could pose a threat to the security of your business.

The setup process of a self-hosted payment gateway is similar to that of a hosted payment gateway. The only difference is that the whole checkout process will be completed on the merchant’s website. If you consider choosing self-hosted payment gateways, make sure you have an in-house technical supporter to handle issues.

API payment gateways

This is the best option for merchants seeking full control over the checkout process, design, security, and responsive technical support. Unlike others, this type of payment gateway handles payments directly on the merchant website using an Application Program Interface (API).

API integration allows for more creativity. Merchants can explore various payment flows, such as mobile checkout, and customize their checkout page without worrying about data and technical issues.

Besides these three types, there are also modern and traditional payment gateways. Check out our article on why a modern payment gateway is a better choice.

Still don’t know which one is suitable for you? Contact us to know which option will be best for your business.

What to look for when choosing a payment gateway?

There are six criteria that businesses need to consider when choosing a payment gateway, including:

1. Cost

The cost of a payment gateway comes in three forms:

• Setup fee

• Monthly fee

• Transaction fee

This shows that other than the fixed costs, there could still be additional hidden costs. Therefore, businesses need to pay extra attention before selecting a payment gateway. Adding to that, you also need to consider both the volume and value of your transaction to make the most cost-effective choice.

2. Security and fraud prevention measures

Since the card information collected during the payment process is sensitive, the security of the payment gateway platform that you’re choosing should be the highest priority. Different gateways offer different security standards. Keep in mind to opt for a provider with level 1 PCI DSS and protective tools to prevent fraud.

3. Variety of payment methods

It is crucial to find a payment gateway that offers multiple payment methods. The gateway should provide the payment options your customers are accustomed to, including credit/debit card payments, FPX, e-wallets (such as GrabPay and Shopee Pay), and QR Payments (i.e. DuitNow).

You should also look for multi-currency support to prepare for expansion to international markets.

4. Limits

Some payment gateways may limit the value or number of transactions per month. While this might not be a problem for small businesses, it may not be compatible with enterprises handling high-value goods or a significant number of transactions.

5. Holding time

Although payments through payment gateways are often accepted instantly, it still takes a few days before the money is sent to your bank account. This feature is to enable the management of chargebacks and refunds. Depending on the payment gateway, the holding times may range from 1 to 7 days.

6. Reporting and analytics

This feature is necessary for businesses to make data-driven decisions as it provides data on client engagement, pricing, and preferred payment methods. The performance of the payment process, including transaction volume, payment method used, and payment success is recorded and reported on the system.

It is also worth considering if the provider of your choice provides plugins for e-commerce platforms, and invoicing or accounting software that your business is using. This will help streamline your operations and make it much quicker to start accepting payments.

For more tips and deeper insights, read our extensive guide on what to look for in a payment gateway.

What are the key takeaways of using a payment gateway?

In summary, a payment gateway is crucial for businesses as it provides them access to multiple payment methods with firm security of customers’ information. A payment gateway can also make the purchasing process more convenient, and more importantly, gather transaction data for business.

Businesses need to look for a reliable payment gateway that meets specific needs. Ensure that the payment gateway is compatible with your platform or website and test it carefully before going live. By doing so, businesses can confidently choose the optimal payment gateway that delivers the smoothest transaction process.

With no maintenance fees, no redirection, and absolutely no downtime even in peak hours, Opn payments has been trusted by more than 6,000 thousand businesses across Asia. Our payment solution is simple to set up and designed for a seamless payment experience.

If you have any questions related to the payment gateway, our support team is ready to help 24/7. Don’t hesitate and let us help answer all your concerns about payments!