What is Payment Gateway?
Apayment gatewayis amerchant serviceprovided by ane-commerceapplication service providerthat authorizescredit cardor direct payments processing fore-businesses,online retailers,bricks and clicks, or traditionalbrick and mortar. The payment gateway may be provided by a bank to its customers but can be provided by a specialized financial service provider as a separate service, such as apayment service provider.
A payment gateway facilitates a payment transaction by the transfer of information between a payment portal (such as a website,mobile phone,orinteractive voice responseservice) and the front-end processor oracquiring bank.
Payment gateways are a service that helps merchants initiate e-commerce, in-app, and point-of-sale payments for a broad variety of payment methods. The gateway is not directly involved in the money flow; typically, it is a web server to which a merchant's website or POS system is connected. A payment gateway often connects several acquiring banks and payment methods under one system.
How Payment Gateways Work
Payment gateways include these key stakeholders:
·Merchant:The business or any person making the sale.
·Cardholder:Your customer making the purchase.
·Issuing bank:The financial institution that holds the customer’s account, either a credit card account or a checking account connected to a debit card.
·Card schemes:The credit card companies that manage the card, like Visa, MasterCard, or American Express.
·Acquiring bank:The financial institution that holds the merchant’s account.
Payment Gateway Process Flow
1.At checkout, the merchant’s website sends encrypted payment details to the payment gateway
·The customer browses your site on their laptop or phone, places their selection in their shopping cart, and then proceeds to checkout.
·As part of the check-out process, they may be asked to confirm their order and fill in their billing and shipping information.
·They submit the order by pressing ‘order’ or ‘pay now.
·The customer’s web browser encrypts the payment information and this is then sent to your web server. The process is carried out via Secure Socket Layer (SSL) encryption, which requires you as the merchant to have a full SSL certificate.
·The gateway app on your website then forwards the transaction details, again using SSL encryption, to your payment gateway.
·At this point, the payment gateway takes over.
2.Payment gateway sends a request to customer’s bank for authorization
·The payment gateway sends the encrypted transaction information to the payment processor used by your bank (the “acquiring bank”).
·The processor then forwards this to the customer’s card association, for example, MasterCard or Visa.
·The card association routes the transaction to the bank that issued the card to the customer.
·The customer’s bank receives the request and checks that the funds available to the customer can cover the amount requested.
·The customer’s bank responds to the payment processor with a code that indicates whether the request is approved or declined (and if it is declined, the reasons why).
·This response is then sent from the payment processor back to the payment gateway.
·The payment gateway forwards this response to your website, which in turn interprets it and passes it on both to you as the merchant and to the customer who is checking out.
·Remarkably, this entire process happens in 2 – 3 seconds.
3. If payment was authorized, the customer’s bank pays the merchant
·If the customer’s payment is approved, you send the authorization, via the payment processor again, to your (“the acquiring”) bank, as part of a batch, which gets processed.
·Your bank deposits all the approved funds either into your merchant account or into the aggregated merchant account belonging to your payment gateway.
·From that merchant account, the payment is then made into your business bank account.
Important Considerations for your Payment Gateway
Let’s look at two very important aspects of this.
1. The merchant account
A merchant account is a transition account that temporarily holds payments from credit card sales. It is transferred from here into your business account.
The merchant account is designed to protect both the consumer and the credit card companies. So, for example, if a business does not deliver what was ordered, the customer can be refunded from the money held in the merchant account.
Some payment gateway packages require that businesses set up their own merchant accounts and others will offer the option of using the gateway’s aggregated merchant account.
Two factors to consider:
·Cost
It takes time and effort to set up your own merchant account and you will be paying a set-up fee and monthly fees. Using the payment gateway’s merchant account will save you time and money, but you will probably be paying higher individual transaction fees. You may find it makes sense to use the joint account if you are a small start-up with fewer transactions. As your business grows, consider setting up your own merchant account, but do the calculations to determine the best option for your business.
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·Cash flow
By definition, there is a delay between when payments go into a merchant account and when you actually receive it in your business account. The delay will vary depending on your choices of payment gateway and merchant account option. Make sure you know exactly what to expect so you can allow for it.
2. Security of payment details
There is always some risk involved in making online payments, both for customers and for merchants. The key is to do what you can to help customers feel safe while taking care of your obligation to protect their details.
There are essentially three issues to look out for and understand whether you or the payment gateway is responsible:
·Secure Socket Layer (SSL) – which the merchant is responsible for
·Payment Card Industry Data Security Standard (PCI DSS) – which the entity storing customer payment details are responsible for and
·3D Secure – this method is now used by all South African payment gateways and banks, so no obligation on your side. However, do investigate further if you are using international entities.
Online Payment Gateway in India & Globally
How to Choose the Best Payment Gateways in India?
·Safety and Security
The payment gateway should have a safe environment while making payments. Ecommerce giants like Amazon India and Flipkart always focus on providing the best shopping experience. That is why safety is essential. You should choose a payment gateway that offers amazing safety for your customers.
·Responsiveness
Mobile users have been increasing rapidly and if the payment gateway is not mobile-friendly, the chances of losing customers are extremely high. Make sure you choose a payment gateway that is mobile responsive.
·Bank Settlement Time:
Whenever you search for payment gateways, make sure you check the settlement time. There are some payment gateways that take 5-6 days for settlement. The settlement time should be less than 3 days.
·Integration Process:
As a business owner, your focus should be on business; not on integrating the payment gateway. If a particular payment gateway takes too much time for integration, you should avoid and choose the one which takes less time for integration.
·24 hours a day customer support:
Good customer support is essential to have. If you find any problem with the service, there should be a quick problem-solving approach from a payment gateway provider.
·Offers partial payment
If you are a business offering high-value products, partial payment features can help stand out among the competitors. For Magento 2 store owners, usingMagento 2 Partial Paymentextension solves the issue. Selecting a payment gateway that facilitates partial payment is important for high-value goods.
·Easy onboarding process
Choose a payment gateway that is easy to install, integrate and configure in your online store. The easy onboarding process makes your task easier to start collecting secure payments!
Types of Payment Gateways
Before you can choose the best fit for your website, you’ll need to think about your business needs and infrastructure. Some types of payment gateway are self-hosted, while others offer a full package service. The main difference between these various types of payment gateway is how they’re integrated into your website. Some requiremore maintenance and upkeep, while others offer hands-off support from the host.
1. Hosted payment gateways
If you don’t want to deal with the finer details of integrating and maintaining your website’s payment gateway, a fully hosted service is probably your best bet. Hosted payment gateways work by directing the customer away from your checkout page. Instead, when the customer is ready to make a purchase, they click on a ‘buy now link which redirects to the host, or payment service provider (PSP) page. This separate site is where the customer fills out payment details before redirecting back to your business website to complete the sale. One example of a popular hosted gateway is PayPal.
These types of payment gateways offer a high level of security withPCI complianceand fraud protection. They’re also very user-friendly and easy to set up, with the host taking care of the details. However, because a hosted gateway is external, you won’t be able to fully control your buyer’s checkout experience.
2. Self-hosted payment gateways
If you prefer to have greater control over your user experience, you might be more interested in choosing a self-hosted payment gateway like Shopify or Stripe. The difference between hosted and self-hosted gateways is that in the case of self-hosted, customer payment details are collected directly on the merchant's website. These details are then encrypted and submitted to the third-party payment gateway for authorization.
One benefit is that a self-hosted gateway enables a faster checkout process because the transaction is completed solely on the merchant site. There’s no redirection to a separate site for payment, which puts the merchant in full control over a user’s payment experience. The disadvantage is that you won’t have access to a full technical support team as you would with a hosted service. That means if something goes wrong, you’ll need to hire an outside professional or figure it out yourself.
3. API-hosted payment gateways
API-hosted payment gateways are best for merchants who want to take complete control of their website design. Both the payment details and processing are handled directly on the merchant website, in this case, using an application programming interface or API. API hosted gateways offer a fully customizable checkout experience and can be integrated with a variety of setups including mobile devices.
The Bottom Line
Payment gateways are an important feature of the digital economy. By allowing customers to safely and securely share their information, these systems reduce some of the barriers to online commerce. While the first payment gateways consisted of simple card-reading devices, they are now sophisticated systems to collect and authenticate PIN numbers, signatures, and other data for merchant transactions.
