How online payment gateways work
If you want to successfully operate your online business operations and provide your consumers with a positive shopping experience, a payment gateway is an essential piece of the puzzle. You’re not alone if you don’t know exactly how this important technology benefits your business.
It is important to understand how this enables a smooth transfer of money from the customer’s wallet to your bank account. So whether you already run a successful online business or just want one, here’s a quick payment gateway explainer.
What is a payment gateway?
A payment gateway is the technology that captures and transfers payment data from the customer to the acquirer. Since it facilitates consumer and business online payments, a payment gateway is what keeps the payments ecosystem running efficiently. If you’re running an online store, you don’t need to be a payment gateway expert, but it’s still important to understand the basics of transferring money online from a customer to your bank account.
An online payment gateway is a cloud service that makes integrating technology into your e-commerce website much easier and helps generate consistent revenue for your business. While giving you the ease of plug and play, it protects critical payment information through encrypted data transfer between various contexts and provides your consumers with a seamless shopping experience.
A payment gateway is essential to protect your business interests from fraud, lost or stolen cards, low balances, canceled accounts and credit limit violations.
Who are the key players?
When a customer clicks on the “Pay” button on your website, here are the main actors involved in the payment process:
Merchant: is you, i.e. an online business operating in any vertical (travel, retail, e-commerce, gaming, Forex, etc.), offering a product or customer service
The customer: the customer, also called the cardholder, who wishes to access the products or services that the merchant sells, and initiates the transaction
The issuing bank: the issuing bank is the customer’s bank that issues the cardholder’s credit or debit card on behalf of the card schemes (Visa, Mastercard)
Acquirer: Also known as the acquiring bank, the acquirer is the financial institution that manages the merchant’s bank account (referred to as the merchant’s account). Acquiring bank forwards merchant transactions to issuing bank to receive payment
What are the different types of payment gateways?
Payment gateways can be categorized as follows based on their forms of operation:
– Redirect: To complete the transaction, the payment gateway sends the customer from your website to the website of a payment processor like Worldline.
– Hosted or off-site payment: Your consumer makes all their purchases and makes all their payments through your website. However, your payment gateway provider’s servers are where payment information is processed.
– On-site or self-hosted payments: Your servers are used to carry out the entire transaction.
How does this work?
Let’s take a look at what happens when your consumer makes an online purchase, provides the necessary information on the payment page, and clicks the “Pay Now” button now that the fundamentals of payment gateways and the online payment ecosystem have been established. The procedure is as follows, step by step:
Step 1: Before transmitting the customer’s payment information to the acquiring bank, the payment gateway tokenizes or encrypts it and performs anti-fraud checks.
2nd step: The acquiring bank sends the data to the card schemes for processing if the payment mechanism is a card.
Step 3: The card scheme performs additional checks and checks before sending the information to the issuing bank.
Step 4: Approved or declined payment signals are provided to the acquirer when the originating bank authorizes the transaction and confirms details, including available balance and card validity.
Step 5: Via the payment portal, the acquiring bank communicates with you. The acquirer collects the funds from the issuing bank and credits your merchant account if the payment is accepted.
Step 6: Depending on the status of the transaction, your website may provide payment confirmation or prompt users to try another payment option.
Step 7: In accordance with the terms of your contract with your payment gateway provider, settlement takes place within a predetermined time frame, by depositing the funds into your merchant account.
Why is the payment gateway useful for online businesses?
The most remarkable benefit of a reliable payment gateway is that it can significantly speed up your transaction while ensuring its security. This implies that in addition to effortlessly increasing your inventory conversion rate, you can also increase brand loyalty by providing your customers with a secure and trusted environment in which to shop.
A payment gateway can fully automate your payment processing, reducing data entry errors and consuming less administrative bandwidth. You can integrate them into your billing system using modern payment channels. Therefore, whenever an online payment is closed, your books will be automatically updated rather than manually tracking your transactions.