A delightful guide; Picking your first payment gateway (Part 1)

What’s what: Payment gateways and PSPs. 

Most people recognize payment gateways as the middlemen involved with processing payments through a simple three step process: 

1. Customer purchases something from a business’ website or app
2. A payment gateway helps process the payment 
3. The payment is successfully processed and the payment amount transfers from the customer’s card to the business’ bank account.

In the fintech world, there are slight differences between payment gateways, payment processors and Payment Service Providers (PSPs). Outside of the fintech world - it’s all pretty much the same. 

A payment gateway encrypts sensitive customer information, such as credit card numbers, and securely transmits the data to the payment processor. The payment gateway also communicates the transaction results to the paying customer and the business.

A payment processor facilitates the transfer of funds between the customer's bank and the business’ bank. The payment processor verifies the customer's payment information, authorizes the transaction, and initiates the transfer of funds.

While a payment gateway is the"front-end" component of the payment process, a payment processor is the "back-end" component. PSPs can provide both!

For the rest of this article, we’ll refer to payment gateways as PSPs - the more accurate term to describe what most people refer to as a payment gateway.

How does PSP pricing work?

Pricing is the most sensitive topic when discussing PSP, so let’s break it down! Pricing models typically include a combo of variables:

• Percentage of transaction: A fee that is charged as a percentage of the total transaction amount. For example, a PSP may charge 2.9% + AED 1 per transaction.
• Flat fee per transaction: A fee in the form of a fixed amount that is charged for each transaction, independent from the transaction amount. For example, a PSP may charge AED 1 per transaction.
• Monthly or annual fee: A monthly or annual fee for access to their platform. These may cover additional services such as fraud detection or recurring billing.
• Chargeback fee: A fee charged when a chargeback (a reversal of a transaction at the request of the original cardholder) occurs.
• Refund fee: A fee charged when a refund is processed.
• Currency conversion fee: If multiple currencies are supported, a fee is typically charged for currency conversion.
• International transaction fee: Additional fees may apply for transactions that involve cross-border payments (eg. a customer is paying a UAE business using a card issued in the USA).

Always review the fees and pricing structure of a PSP before signing up (transparency is key!). When comparing pricing between PSPs, avoid comparing fees based on a single variable. Perform a holistic comparison of what you expect to pay given your own transaction volumes and average transaction sizes.

For example, a PSP offering 2.5% + AED 1 will be worst than one offering 2.6% + AED 0.8 if your average sale is in the amount of AED 100 → 2.5% + 1 adds up to AED 3.5 in fees, while 2.6% + 0.8 adds up to AED 3.40 in fees. Always do the math accurately.

For Mamo Pay for Business, pricing is clear and to the point. What you see is what you pay. This helps us offer a trusted payment structure, without any surprises. And it helps prospective businesses have all the information on hand while drawing comparisons. 

Coming next: In Part 2, we’ll dive deeper into key features to watch out for when picking a viable PSP for your business.

END OF PART ONE