Have you ever made an online transaction? It may seem super simple for the end-users, but there is a lot going on at the back-end. The most crucial part of online payment processing is the payment gateway – a technology used to ensure seamless transfer of funds between buyers and merchants. It is the payment gateway that transfers the buyers’ financial and personal information to the acquiring bank for processing electronic transactions.
As important as the payment gateway is, it is one of the common targets for scammers. A security report by Thales Data shows that approx 75% of merchants have reported cybersecurity issues for their eCommerce stores. This shows the importance of having a robust and secure payment gateway in place for a better shopping experience.
In addition, customers are highly likely to abandon a cart if they are not satisfied with the shopping or payment experience. A lengthy checkout process and delays in the transaction can have a significant impact on the customer experience. Let’s understand what are payment gateways and how payment gateways works.
How Does a Payment Gateway Work?
Payment gateways are used in land-based and online stores for processing all types of credit/debit card transactions. Authorize.net and Paytrace are two of the popular payment gateways used by a vast majority of eCommerce stores. Here is how it works:
- Encryption: Payment gateways are responsible for encrypting the user’s personal and financial data. The information is encrypted between the browser of the customer and the seller’s server.
- Authorization request: the credit card company reviews the transaction request and sends an authorization request
- Payment Fulfilment: The next action is taken after the payment gateway’s authorization request is approved.
In simple terms, as soon as a customer hits the “buy now” button on your website, the online payment gateway sends your customer data to the credit/debit card processing companies. The gateway takes the response from these companies and shows this information on your website to tell if the transaction is valid. Basically, it acts as the intermediary between the eCommerce store and the payment processing networks. The payment gateway is used to exchange this information and ensure that the entered details are legitimate. In a brick-and-mortar setting, you have the physical cards for easy validation. That, however, is not an option for eCommerce payment processing, which is why a payment gateway is used.
How is the Payment Gateway Different from the Payment Processor?
People often confuse the payment gateway providers and processors for the same services. While the terms are often used interchangeably, they are different.
A payment processor is responsible for the transfer of credit/debit card numbers and other financial information to the issuing bank. The payment gateway does the same, but with the additional responsibility of the fund authorization.
A payment processor, just like the gateway, can either be a combination of software and hardware components or it can solely be the software handling the whole task. However, a processor only performs a step to facilitate the transaction. It does not process the transaction.
Is it Mandatory for Every Business to Have a Payment Gateway?
Every Ecommerce store that accepts payment through electronic means needs a payment gateway to validate the transaction. As mentioned above, your transaction cannot be processed without verifying the credit/debit card details of your customers. Since you don’t have access to their physical cards, you are going to need a gateway that sends this data to the card company for verification and transaction authorization.
A payment gateway is not necessary if you have a brick-and-mortar store only. However, if it is a hybrid – both online and offline store, you should consider using a payment gateway for both stores to simplify transactions.
Best Payment Gateways
Here are the examples of the top payment gateway companies you should know about:
Authorize.net is a US-based payment gateway processor supporting electronic payments for all types and sizes of businesses. The company started in 1996 and since then it has helped businesses in processing payments both offline and in-person. The service enables people to manage electronic transactions made through credit cards, check payments, mobiles, and in-person payments.
Established in 1998, USAePay is another popular payment processing company offering a robust gateway solution for small and large businesses. The software can be easily integrated into your web-based eCommerce store for easy transaction processing. This PCI-compliant company is safe for online transactions.
Paytrace is another payment gateway known for its robust security and smooth payment processing features. It is designed for small retailers looking for a flawless card processing service, especially for credit card and check payment processing solutions. The company assists you in managing your business in the most efficient and reliable way possible. Paytrace complies with the PCI security standards.
Things to Look for in the Payment Gateway
Since you have plenty of payment gateway networks, choosing the most suitable and cost-efficient one can get a little overwhelming. Here are a few things you should consider in the payment processing solution.
- Compliance with the PCI standards
- A hosted gateway (it is better than the self-hosted gateway, as the merchant doesn’t have to take the responsibility for transaction security with a hosted gateway)
- A smooth and convenient customer experience
- A seamless connection between your website and the bank account
- Accept multiple currencies (if you want to expand your business on a global scale in the future)
- Optional customization features for better user experience
If you are having a hard time choosing a payment processor and a gateway, get these services in one package. It offers a seamless user experience to your customers while reducing the complexity of handling different payment processors.