What Is a Payment Gateway, How It Works, & Why Online Retailers Need It

Understanding how your payment system works is critical for running a successful eCommerce business, protecting your customers' data, and reducing costs.

Online merchants must figure out their online payment gateway as part of the payment process. It must not only facilitate transactions, but it must also protect consumer data and privacy.

But what exactly is a payment gateway, and why is it important? Retailers should ensure that their online store is set up for success.

What Is a Payment Gateway?

Credit card processing includes the use of a payment gateway. It functions similarly to an invisible cash register for digital transactions.

Its job is to make the transaction as quick and easy as possible while also ensuring its security.

Your credit card processing company creates the gateway. This is then integrated with the eCommerce platform that your store employs. When a customer makes a purchase, the gateway securely transmits information from the website to the processor, much like a POS terminal does in a physical store.

How Does a Payment Gateway Work?

Though the average consumer has little reason to consider it, the process that payment gateways enable is quite amazing. Data is sent across the world between multiple parties in just a few clicks.

• When a customer places an order, they must enter their credit or debit card information.

• The merchant services company will classify the transaction as card-not-present (CNP) (which may result in slightly higher interchange rates).

• The information is encrypted before being sent to the processor.

• Your processor then forwards the information to a credit card network (VISA, Mastercard, etc.).

• Either the transaction is approved or denied.

• If the application is approved, the issuing bank (the customer's bank) notifies all parties involved.

• This final authorization takes only a few seconds to complete. Within 1-2 days, merchants will receive funds at their acquiring bank.

How Are Payment Gateways Different Than Payment Processors?

Payment gateways enable processors and eCommerce platforms to exchange information and complete transactions.

A payment processor is a company you've chosen to handle and secure all transactions. Processors, also known as merchant services, transfer payment data from the issuing bank to the acquiring bank, credit card network, and eCommerce store.

Processors can be integrated into your eCommerce platform or point of sale solution, but they are more often than not a third-party. Merchants have no choice but to use processors that are linked to a POS system, which often come with higher rates.

The gateway is simply a component of the processor's function. It handles the initial communication in an online transaction. Your payment processor is in charge of ensuring the transaction's efficiency and security.

What Are the Different Types of Gateways?

Any online retailer has several best online payment gateway payment gateway options. Generally, it is determined by the size of your operation.

Redirect – A gateway will redirect a customer from the eCommerce payment page to a payment processor such as PayPal for smaller retailers. This means that the merchant can rest easy knowing that he or she is working with a reputable and secure processor. It does, however, give the merchant less control and adds an extra step to the customer's checkout process.

Off-Site Payment – In many cases, the payment will take place on your eCommerce site, but the actual processing will take place elsewhere. Again, this makes the process easier for retailers, but it gives you less control.

On-Site – On-site payments are processed entirely on their own servers, which is the most straightforward method. The checkout process and payment processing take place entirely on your website. Most larger online retailers use this to gain more control over the entire process, making it more seamless and efficient.

Are There Common Problems With Payment Gateways?

As previously stated, hackers are responsible for the vast majority of eCommerce login attempts. Furthermore, more businesses are breached each year.

Consumers have reacted to the threat. Despite the fact that eCommerce sales are increasing, many consumers are still hesitant to make a payment online. Malware can make fraudulent payments appear legitimate, and data breaches can compromise payment gateways as well as remote servers.

Gateways may not be able to accept all payment methods. This narrows the shopper's options, driving away a portion of the market. Before you sign up for a processor, make sure to check what types of payments they accept. After all, consumers are using a broader range of payment methods.

Finally, many payment gateways have difficulty processing international transactions. Even if a gateway can process an international payment, the fees are usually much higher. Inquire with your processor about the problem if your store frequently sells to international customers.

How Can I Make Payment Gateways Safe?

Simply put, by selecting the appropriate processor. It is not the merchant's responsibility to secure the gateway. Payment processors, on the other hand, are responsible for a variety of security precautions:

Storing Customer Data – Websites frequently save payment information to make the process easier for repeat customers. Make certain that it is secure.

Encrypting the Data – In order to keep payment information secure, processors must encrypt all payment information.

Subscription Billing – Subscription billing stores customer payment information as well.

PCI Compliance – It is the responsibility of all processors to ensure that each transaction is PCI Compliant. Retailers must complete some paperwork, but your processor should make this simple.

eCommerce Integration – Finally, in order for any online transaction to be secure, the gateway must integrate with the eCommerce platform.

How Do I Set Up a Payment Gateway for My Store?

You're off to a good start by learning more about credit card processing!

First, decide whether you want a hosted or integrated gateway. Again, hosted gateways send the shopper off-site to complete the transaction, whereas integrated gateways keep the shopper on your site throughout the checkout process.

Next, if you're already using an eCommerce platform, ensure that the gateway is compatible with that platform.

Examine the costs. Credit card fees can be difficult to understand, and small changes can quickly add up. Choose a processor that promotes transparency and provides you with options.

Examine the contracts, cancellation policies, and surcharges. Avoid solutions that attempt to lock you into long-term contracts.

Inquire about currencies. If you sell products internationally, make sure the payment gateway India accepts a variety of currencies.

Examine the anti-fraud measures. Check to see if the company is taking every precaution to avoid fraudulent transactions.

Finally, think about your customer service policies. It is critical for basic business operations to ensure that your company can accept payments safely. So, if something goes wrong, you must be able to rely on a strong support team.