CoinsPaid
 

What is a payment gateway: how does it work

No doubt you must have had experience as a shopper in e-stores, in various opportunities, and at this point, when you own one, you wonder how you can improve the user experience on your site. A satisfied customer is a trusted buyer for future visits and purchases. When a customer enters your store, they expect to find site navigation, clear design that doesn't lead to confusion, search settings, and other direct or indirect means that will encourage them to stay on your page and return as well. If your store is a safe place with acceptable navigation that helps your customer choose products and finally purchase them, you may be missing just one point: a safe and secure payment gateway. Today, we will explain what a credit card payment gateway is and how it works.

What is a payment gateway and how does it work?

By definition, a payment gateway is a type of software that works with a transaction to make it easier for customers to pay. Depending on the payment gateway that the store uses, you get a better or worse experience for customers when paying for services or goods. If we approach the definition more broadly, we can say that a payment gateway is an element that is built into a virtual store to provide the customer with a secure environment in which they can pay for their purchases. When you have an online business, it is important to have a system that ensures users that their personal and banking information is protected. Payment gateways provide this level of security for economic transactions over the Internet because they encrypt data, guaranteeing its confidentiality and integrity.
How does it work?
A payment gateway is a link that connects an e-store to the buyer and allows the buyer to securely pay for selected purchases and the seller to receive that payment. In other words, it is an online collection service. Although visually this process seems very simple, inside there are a lot of steps:
The customer enters the card details where he wishes to make the payment.
This data is transmitted to the user's financial institution, which must identify it as correct.
Data encryption protocols (SSL, or now TLS) are used to guarantee their secure transmission over the Internet.
Once accepted, the facility returns them to the store and proceeds with the purchase.
That's when the bank finally authorizes the collection.
And through the payment gateway, the amount is transferred from the customer's account to the store.

Payment gateways perform different types of transactions:

  • Authorization: when a payment is authorized, it confirms that the cardholder has sufficient funds to make the payment. During this stage, there is no monetary movement. Authorization essentially guarantees that the buyer can pay for his order and confirms the security of the payment.
  • Payment processing: this process takes place when the authorization of the payment has passed and the stage of sending funds to the bank account takes place.
  • Sale: it can be said that this is the process of combination of authorization and fixing of transactions. First, the owner of the funds is authorized and then the funds are captured. Moreover, payments for immediate purchases are also considered a sale.
  • Refunds: a refund occurs when a payment is cancelled. When the customer side requests a refund, it must be processed and the funds must be returned.
  • Payment processing: this process takes place when the authorization of the payment has passed and the stage of sending funds to the bank account takes place.
  • Sale: it can be said that this is the process of combination of authorization and fixing of transactions. First, the owner of the funds is authorized and then the funds are captured. Moreover, payments for immediate purchases are also considered a sale.
  • Refunds: a refund occurs when a payment is cancelled. When the customer side requests a refund, it must be processed and the funds must be returned.

Who is involved in the online payment process?

In the process of making digital payments, there are quite a lot of instances (by the digital standards of our time). After the customer clicks the "pay now" button on their order page, the internal part of making the payment comes into play, in which the following players are involved:

  • Merchant: An online company that works in any vertical to sell its products or services online is an online merchant or seller.
  • Customer: also known as the cardholder, the customer is the person who comes to your online store and initiates the transaction.
  • Issuing bank: the customer's bank that issues the cardholder's debit or credit card.
  • Acquiring bank: this is the bank that hosts the account for processing the merchant's credit card. Payments are accepted and then the acquirer sends the merchant's transactions to the issuer.

What should be considered when choosing a payment gateway?

A payment gateway is a service that plays an important role in closing your online sales. Therefore, it is important that you take some factors into consideration when choosing which payment gateway to use in your e-commerce. We give you some ideas:
  • Security. If your customer feels uncomfortable entering their financial data, the sale could be damaged. So make sure the payment gateway you choose has the proper security certificates, informs the user that you are going to redirect them to another page, and has an easy-to-understand interface.
  • Variety of payment methods. The key is that when you implement a payment gateway technology in your online store, you know what payment methods it offers. In addition to accepting credit cards and offering a virtual banking alternative for making debit payments, it's good that the gateway allows you to pay in cash at related locations. In Colombia, for example, these might be establishments like Baloto or Efecty. You can also have the ability to cancel on delivery, which means when the user delivers the money when they receive their product.
  • Anti-fraud system. To respond to any case of disagreement, it's important that the gateway has an effective fraud protection system that can handle charges and cancellations. This will help you always provide quality service to your customers.

What is the difference between a payment gateway and a merchant account?

To accept card payments and use a global payment gateway to transmit data, the customer must have a merchant account. Your payment gateway, or any other financial institution that processes your payments, as mentioned earlier, can set up your merchant account for this whole system to work smoothly. The bottom line is that you cannot accept online payments without having a merchant account.

Conclusion

Payment gateways providers are one of the most important inventions of our time, which simplify work and help to safely make payments at a time when there are a lot of fraudsters. In this article, we've taken the concept of payment gateways apart and we can summarize one thing: security. Security is the most important factor in choosing a payment gateway because users will always be ready to return to a store where the payment is fast and safe.
© 2020 CoinsPaid
Dream Finance OU (Reg No. 14783543)
Harjumaa, Tallinn, Kesklinna Linnaosa, Viru Väljak, 2-3rd Floor, Metro, 10111, Estonia
VAT: EE102212301
License No.: FVT000166.