Payment gateways connect online merchants to consumers. These gateway technologies integrate with e-commerce platforms, allowing their users to make and receive payments with ease.
What Are Payment Gateways?
Payment gateways can verify and securely transmit online payment data from the merchant to the consumer and the issuing bank. If an e-commerce store intends to accept mobile or credit card payments online, a payment gateway is essential as it helps them verify the consumer’s credit card information. On top of that, it can process the payment and finalize the sale.
They can help online merchants protect sensitive card data. They can prevent potential threats from accessing private information. These gateways can even protect merchants from consumers who are trying to transact with expired cards, insufficient funds, and closed accounts.
E-commerce stores mostly use payment gateways since brick-and-mortar stores have point-of-sale terminals to process payments at physical locations. However, if they want to expand online, a payment gateway can greatly help the checkout process.
Types of Payment Gateways
Payment gateways can be divided into three categories: redirects, off-site payment, and on-site payment.
A redirect gateway opens a separate payment page where buyers can check out the items in their shopping cart and pay for them. This type of payment gateways offers more security and convenience.
- Off-site payment
In an off-site payment gateway, the checkout will occur on a website, but the payment process will happen on a separate payment page. Similar to redirect gateways, merchants won’t have control over the customer experience through an off-site payment gateway.
- On-site payment
Large e-commerce stores use on-site gateways, which means the entire checkout and payment process occurs on their system. This gives them more control over the customer experience, but it also gives them more responsibility.
How Do Payment Gateways Work?
Payment gateways simplify the payment process for online merchants and consumers, allowing all parties to settle payments securely and efficiently.
Consumers are required to fill in some details, including credit or debit card information on the payment page during checkout. After entering the necessary information, it is securely passed onto a payment gateway, which encrypts data for exclusive use between the merchant and the buyer.
Merchants send the transaction details to the payment gateway, which will then be forwarded to the payment processor.
The payment processor forwards the information to the card association, such as Visa or American Express. After the issuing bank receives the authorization request, they will verify the details. Whether the payment message gets approved or declined, the bank sends the message back to the payment gateway. It will then forward the message to the merchant.
Once all the transaction details are verified and confirmed, the funds will be deposited into the merchant’s account. This process is called the settlement.
What to Look for in a Payment Gateway
Not all payment gateways are made equal. They vary greatly in terms of security, features, and functionality.
Merchants who accept credit or debit card information must utilize a PCI-compliant payment gateway. Secure gateway technologies can help e-commerce businesses protect consumer data and prevent it from getting into the wrong hands.
Payment gateways may have international capabilities, allowing merchants to transact with consumers from all over the world. These gateway technologies enable even the smallest e-commerce shops to accept other currencies.
Some payment gateways offer optional features such as buyer authentication or fraud protection. Others are even capable of recurring payments, such as monthly subscriptions or membership fees.
Merchants have to pay fees to utilize payment gateway services. The cost can vary greatly from one service provider to another. It can also depend on the services that the merchant wants to utilize. On average, service fees can range from $0 to $25. Some payment gateways may even have hidden fees, which can increase costs.
Payment Gateways vs. Payment Processors: What Are Their Differences?
Both payment gateways and payment processors are important to the payment processing chain. Despite their similarities, they have different functionalities.
A payment processor forwards the buyer’s card details to the issuing bank. Once approved, it connects the bank to the merchant account so that funds may be transferred. However, it can’t secure the transactions.
Payment gateways can make the payment process less taxing for merchants and consumers. They can also securely authorize transactions to make sure e-commerce stores receive the payment.
Online merchants need both payment gateways and payment processors for online sales. However, utilizing a payment gateway that is separate from a payment processor can give merchants the flexibility to choose their desired bank.