The rise of digital commerce has increased public interest in buying goods and services online. From now through 2025, online payment transactions will continue to grow, with a growth of more than 12%.
As we adapt to an increasingly non-cash transaction, we must start adapting to a cashless world. This calls for secure, easy, and efficient payment service providers to facilitate transactions. It helps simplify how we pay and increase efficiency for businesses and consumers. The service is called a payment gateway.
Payment gateways were typically associated with online payments, but now many service-based businesses are starting to use them. Companies now realise that safe, fast and easy transactions are a necessity.
What is a Payment Gateway?
Simply put, a payment gateway is a secure solution for reading and transferring customer payment information to a bank account for online and direct transactions. It's like a cash register, but the payment is non-cash. Some payment gateways are debit cards, credit cards, eChecks, and digital wallets (Google Pay, Apple Pay, Amazon Pay, PayPal, etc).
Payment gateways function as a bridge between merchants and prospective buyers through online transactions. The main job of a payment gateway is to capture payment info securely, ensure funds are available in customer accounts and get merchants paid.
How a Payment Gateway works
Payment gateways are software built into point-of-sale (POS) systems or card readers that process transactions when cardholders use their cards to make payments.
In the payment gateway, there are several parties who contributed essential roles, namely:
- Merchant: the business, organisation or person who makes sales.
- Cardholder: the consumer who makes the purchase.
- Issuing bank: a financial institution that holds customer accounts, it can be a credit card or a debit card.
- Card schemes: companies that manage cards, such as Visa and Mastercard.
- Acquiring bank: a financial institution that holds merchant’s accounts.
Gateway authorises customer payments and encrypts cardholder information. It then confirms the price with the issuing bank and deposits the money into the merchant's account.
This function is performed by connecting to a debit/credit card network such as Visa and Mastercard. Once connected, the gateway verifies the customer's credit card information and overall transaction data validity. After the gateway receives a response from the issuer regarding the availability of funds and valid information, the gateway forwards the transaction to businesses and consumers.
- Customers (cardholders) make transactions on the merchant's site using a credit card at a physical store or website.
- The payment gateway passes credit card information to the acquiring bank.
- The payment process interacts with the customer's card network (Visa or Mastercard), and then the transaction goes to the issuing bank.
- The issuing bank verifies that funds are available in the account. This process is also helpful in validating whether the transaction is fraudulent. Then, the bank can reject or approve the transaction.
Types of Payment Gateways
Generally, there are three types of Payment Gateways:
- Hosted (Off-site): the customer purchases through the merchant's website or physical store. Payment providers' servers receive payment information for processing.
- Redirect: the payment gateway takes the customer to a payment processor, such as PayPal or Stripe, to process the transaction.
- Self-hosted (On-site): payments are entirely on your server (owned by your store).
The benefits of a Payment Gateway
1. Secure transactions
Payment gateways secure transactions so that you can stay PCI compliant. Any business that handles cardholder data must comply with PCI standards. The gateway encrypts the cardholder's data to keep the information safe and secure. This helps protect both parties from credit card fraud and other security threats.
2. Cost saving
Payment gateway transaction fees are lower because there are usually no monthly fees. Payment gateways also streamline the checkout process. When shopping on a website, the costs and time spent are more efficient than manual shopping. This helps the company to focus on business growth.
3. Flexibility
Flexibility is the main point of a payment gateway. One implementation is that businesses can accept payments in many ways. For example, payment gateways usually integrate with e-wallets and international payments (Visa, Mastercard, and American Express). Businesses can grow and be ready to accept new customers.
4. Increase sales
As a business owner, you can securely scale up your business by receiving payments from anywhere and anytime. Many options of payment methods help potential buyers complete their purchases. These advantages help companies to increase sales and revenue.
5. Easy integration
The payment gateway integration process is straightforward. You just need to paste the API code, and the payment gateway is ready to use.
How to choose a Payment Gateway
Payment gateways are known as fast, secure and easy to use. Choose a payment gateway that describes these three words and has the following characteristics:
- Security is the primary concern in payment gateways. You must ensure that your payment gateway uses data encryption and complies with PCI-DSS, AES-256, ISO 270001, and TUV certifications.
- It must integrate with the shopping cart on your website. Make sure to adjust some points, so the checkout process is more accessible.
- Your payment gateway must be simple and integrated with many payment options. When implementing it on the website, combine it with a dashboard, and you can see transactions and access detailed financial reports.
- The payment gateway must be fast. Payment gateway speed is the key to customer trust.
- Features are a plus point in the payment gateway. Many payment gateways already offer reporting, payment management and monitoring features. The payment gateway must provide fraud detection and 3-D secure options if it accepts international cards.
Payment Gateways vs. Payment Processor
The term Payment Gateway is often combined with the terms Payment Processor and Payment Service Provider, but these are three different things.
The Payment Processor transfers information between the issuing bank and the acquiring bank to transfer money to the business account. The process requires assistance from a Payment Gateway to communicate and authorise transactions. Meanwhile, the Payment Service Provider (PayPal, etc.) includes a Payment Processor and Payment Gateway.
Should you rely on a Payment Gateway for all of your transactions?
The answer is no. To maximise the payment gateway function, customers must have a debit card connected to a credit card or e-wallet. And the critical point is that not everyone is comfortable with this concept. Some people may be more comfortable paying with cash or other payment systems.
Conclusion
Overall, a payment gateway simplifies the online payment process for your business. This system helps you receive payments faster, more conveniently and more securely. If you are looking for online payments or want to improve your website to make the checkout process more accessible, then a payment gateway is what you are looking for.
