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Discover Many Facets of Payment Gateways

Aman Jain| Nidhi Inamdar|4/6/2023, UTC|13 MIN READ|
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Payment gateways are the bridge between a business, customers and payment processing companies ensuring secure and safe transactions. A payment gateway is software used in e-commerce that enables merchants to accept various electronic payments, including credit cards, debit cards, and other similar methods.  

Payment gateways have emerged as knights in shining armor in a world where online shopping is king, protecting the financial transactions of millions of clients worldwide. These electronic gatekeepers give businesses a quick, safe, and seamless way to take various payment options, including credit cards, e-wallets, and everything in between. Payment gateways are becoming the go-to option for companies trying to increase their online presence and bottom line thanks to their sophisticated fraud detection systems, real-time monitoring, and user-friendly interfaces.   

What exactly is a payment gateway?  

The payment gateway enables businesses to accept electronic payments online and is the e-commerce equivalent of a traditional POS terminal. This software, placed on the front end of a website, collects credit card information and sends it to the payment processor, who notifies the merchant and the customer of acceptance or rejection. The payment gateway essentially serves as a middleman between the client, the merchant, and the financial institution processing the payment.  

How does the payment gateway work?  

The payment gateway ecosystem includes several important players: 

  • The merchant offers a good or service for sale. The cardholder, the consumer purchasing the good or service, is the second. 

  • The issuing bank is the business that gives the client their credit or debit card. 

  • The acquiring bank is the merchant's financial institution to take electronic payments from clients. 

  • Credit card networks enable the exchange of money between the many parties engaged in the transaction and comprise organizations like Visa, Mastercard, and American Express.  

 

Payment Gateway - Lucent Innovation

Customers fill out their information on your website before clicking "buy" or "checkout" to purchase goods or services. The payment gateway transmits the card data to a payment processor using encryption. The payment processor sends this transaction data to the credit card network, which verifies the accuracy of the customer's information before approving or rejecting the transaction.  

The payment processor informs the payment gateway of this outcome and subsequently notifies the customer of approval or denial. The selected transaction amount is withheld from the customer's account and transferred to the merchant's bank account if the transaction is accepted.  

Different kinds of payment gateways  

Hosted, self-hosted, and API-hosted gateways are the three different options available. Each has various integration requirements, maintenance requirements, and degrees of support. Before committing, it's critical to know which type is best for your business to avoid unpleasant surprises.  

Hosted Payment Gateway  

Despite needing to accept credit cards online, many business owners lack the funds or technical know-how to set up, operate, and manage their gateway system. If this describes you, a hosted payment gateway is most likely the best choice. Although hosted gateways are very simple, they also have several serious downsides, including poor security and fraud prevention.  

Customers who purchase on a website with a hosted gateway are transferred to a different web page where they can enter their payment information with a third-party payment service provider (such as PayPal). They are routed back to the merchant's website, where the sale is finalized after submitting the form. Some other examples are 2Checkout, Payza, and Setcom. 

Hosted Payment Gateway - Process
  • One example of a hosted payment gateway is PayPal. When customers use PayPal to pay, they are taken to the PayPal website to finish the transaction. The payment information is entered on the PayPal website, and PayPal's computers handle the payment after that.  

  •  PayPal directs the customer back to the merchant's website after processing the payment. The payment gateway manages the transaction safely and encrypts the payment information to safeguard the customer's private data.  

  •  In addition, PayPal provides extra security measures, including fraud detection and prevention systems that safeguard the client and the business from potential fraud or unauthorized transactions.  

Self-hosted payment gateway  

With a self-hosted gateway, customers may finish their purchases without leaving your website, allowing for a more streamlined checkout process. As a result, the customer journey is controlled by you, the merchant, and is seamless, quick, and professional. Nevertheless, this approach has a huge disadvantage: you'll be responsible for upkeep and integrations. If something breaks, you will need to discover a fix or enlist the help of a payment expert to fix the issue. 

Self-hosted payment gateway process
  • Authorize.net A self-hosted payment gateway is an ARB (Automated Recurring Billing) example. Using ARB, the business may safely accept payments without sending customers to another website by hosting the payment page on their website. As a result, the merchant can have more control over the payment process and give customers a smoother overall experience.  

  • ARB is specifically made for companies that must handle recurring payments, such as subscriptions or instalment payments. Consumers can set up recurring payments on the merchant's website, and Authorize.net securely stores the payment information.  

  • The merchant uses Authorize.net's API to make a payment request from the customer's saved payment information when it's time to process the transaction. Following the real-time payment processing, the merchant is informed of the transaction.  

  • Many security safeguards are available through Authorize.net to guard against fraud and unapproved transactions. They include fraud detection and prevention technologies, CVV (Card Verification Value) checking, and AVS (Address Verification Service).  

  • Authorize.net additionally offers merchants capabilities for managing recurring payments, such as the capacity to create and alter pricing plans, view payment history, and produce reports. A flexible and adaptable solution for businesses of all sizes, the platform is also built to interact with various eCommerce platforms and third-party applications.  

API-hosted payment gateway  

An API-hosted payment gateway allows clients to complete their purchases while still on your website by processing payments using an API. They may be integrated with smartphones and other devices, offering complete customization and control over UI and design. The biggest disadvantage of these gateways is that merchants must be responsible for security. That could result in increased costs for PCI compliance and SSL certification. API-hosted payment gateway process

  • An example of an API-hosted payment gateway is Stripe. With the Stripe API, developers may incorporate payment processing into their website or mobile app (Application Programming Interface).    

  • The Stripe API offers a user-friendly method for managing transaction data and securely processing payments. The API is intended to be adaptable and scalable, enabling developers to create a payment processing system tailored to their company's unique requirements.  

  • The payment information is delivered securely to Stripe's servers when a customer uses the service, where it is processed and validated. The transaction is then immediately approved or rejected, with the outcome relayed back to the website or mobile application of the business.  

  • Moreover, Stripe provides several tools and services to aid businesses in managing their payment processing. Tools for detecting and preventing fraud, forms that may be customized, and secure data management and storage of client payment information are a few of these.  

Typical features of a payment gateway include:  

  • Secure payment processing: A payment gateway should implement industry-standard security measures to guarantee that client payment information is kept private and secure during the transaction process.  

  • Acceptance of payments: A payment gateway should be able to take a range of payments, including bank transfers, digital wallets, credit and debit cards, and alternative payment methods.  

  • Real-time transaction system: A payment gateway should be able to process transactions instantly, giving the merchant and the customer a confirmation immediately.  

  • Recurrent billing: A payment gateway should handle recurring billing to streamline the client payment process for companies that provide subscription-based services.    

  • Fraud protection: To assist in shielding merchants and customers from illegal transactions and fraudulent activities, a payment gateway should have integrated fraud prevention technologies.    

  • Support for multiple currencies: A payment gateway should be able to accept payments in various currencies and support multiple currencies for companies that operate internationally or accept payments in different currencies.  

  • Customizable payment formats: A payment gateway should offer customizable payment forms that can be incorporated into the merchant's website or mobile application.  

  • Reporting and analytics: A payment gateway should give businesses the instruments to monitor and examine payment information like transaction volume, income, and chargebacks.    

  • Integration with other systems: An eCommerce platform, CRM system, and bookkeeping software should all be able to communicate with a payment gateway.  

Types of Services offered by various payment gateways  

One of the most crucial choices when looking for a payment gateway is whether to use a conventional or modern gateway.    

 - Traditional payment gateways  

  • Traditional payment gateways require you to sign up for a merchant account, which adds a little extra time to the setup process. You must go through a review procedure and sign a deal with a bank to do this. You must research to evaluate merchant account providers and ensure that you are aware of all the costs associated with having a merchant account to ensure you are making the best choice.   

 - Digital payment gateways  

  • Digital payment platforms are typically a more effective and preferable choice. Modern or digital payment gateways are much more practical and easier to set up than conventional gateways. Although they frequently charge higher costs for each transaction, they don't require you to sign up for a merchant account.  
      

Payment gateway and a payment processor: What is the difference? 

Although frequently used interchangeably, "payment processor" and "payment gateway" refer to various parts of the payment processing ecosystem.  

A payment gateway is a software application that facilitates safe online transactions by acting as a go-between for the merchant and the customer's bank. It offers a safe method for customers' browsers or mobile devices to send the payment information to the retailer's website or app. The payment gateway is responsible for confirming the transaction, encrypting the payment data, and transferring the money to the merchant's account.  

On the other hand, a payment processor is an organization in charge of handling the transaction and transferring the money from the customer's bank account to the merchant's bank account. Credit cards, debit cards, and other payment methods are just a few of the many payment methods that payment processors can process.  

How do a merchant account and a gateway differ from one another?  

A merchant account and a gateway have two distinct purposes. As you know, a payment gateway is a piece of front-end software that collects and transmits credit card information to a payment processor and conveys approvals or denials.  

A merchant account is a bank account company that wants to take electronic payments, such as credit cards, debit cards, and other transactions; a merchant account serves as a middleman or holding account for payments before they are transferred into your regular bank account. It is connected to your company's acquiring bank.  

What benefits do payment gateways offer?  

  • Payment gateways give you a fully automated method to accept payments online, which is crucial for any business. There are a lot of other benefits like:  

  • They make it simpler for customers to pay for products and services by enabling merchants to take a variety of payment methods.  

  • They greatly accelerate payment processing, enabling merchants to obtain funds quickly and efficiently.  

  • Recurring payments are supported by payment gateways, making it simpler for companies that provide subscription-based services.  

  • Customers benefit from a seamless payment experience due to payment gateways, which increases their satisfaction and trust.  

  • Payment gateways allow businesses to gather crucial customer information that can be used to boost sales and enhance customer satisfaction.  

  • They help safeguard customer payment information by offering secure transactions and adhering to security standards like PCI DSS.  

  • They also give customers a simple and secure method to pay for products and services online, which can help businesses grow their online sales and enter new markets.  

Payment gateways: Are they truly secure?  

The general consensus is that payment gateway services are secure. Here are a few reasons:  

  • Payment gateways safeguard sensitive client payment information using industry-standard encryption protocols.  

  • They comply with the strict security requirements set forth by PCI-DSS, meaning they can process payments.  

  • Payment gateways use fraud detection tools to spot and stop fraudulent activities.  

  • They offer of secure payment pages housed on their servers decreases the risk of intercepting payment information during transmission.  

  • Tokenization, frequently provided by payment gateways, replaces confidential payment information with a special token that cannot be used for fraudulent activity.  

  • Payment gateway companies make significant investments in security measures such as firewalls, intrusion detection systems, and other tools to safeguard their systems from cyberattacks.  

In conclusion, payment gateways are vital for businesses to efficiently and securely take online pay payments. Choosing the best payment gateway for your business can simplify the checkout process, enhance customer satisfaction, and develop your company by entering new markets. Decide carefully and harness the power of payment gateways to advance your company.  

Also read: Why Mobile Payment Systems are crucial for your business now?

Aman Jain

Project Manager

Nidhi Inamdar

Sr Content Writer

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