What is a payment gateway and how does it work? A payment gateway is a technology solution that works as an intermediary in online transactions between customers and merchants. It safely collects the customer’s payment data and passes it to a payment processor, allowing the payment to go through smoothly.
The secure payment gateway process has become a vital part of the e-commerce industry. It allows customers to make credit card payments or pay in other ways safely and without any fuss. As e-commerce becomes even more important, this online payment method is going to be a major part of its growth.
What is a payment gateway, and how does it work
What is a payment gateway account in terms of the way it works behind the scenes? Payment gateways operate by utilizing technologies that facilitate the processing of electronic payments. The online payment process follows the steps listed below.
The step-by-step process
The payment gateway collects the payment information details at the checkout stage of an online purchase. It encrypts the data for greater security at this stage.
The gateway then sends the encrypted data to the payment processor. The processor passes this card data to the customer’s issuing bank account or credit card network for payment. The online payment is then verified with the relevant financial institutions to see if there are enough funds in the bank account or credit card to cover the transaction.
In this way, the payment details are approved or denied swiftly. This message goes through the network to reach the payment processor and then the payment gateway. Once it completes this journey, it appears to the customer and merchant as approved or declined.
Once the payment is accepted
Once accepted, the payment processor passes the money from the customer’s bank account to the merchant’s business bank account. How a payment gateway works behind the scenes allows businesses to simply accept payments and concentrate on their day-to-day activities. It also takes the potential stress and risk out of the transaction from the client’s point of view by adding security measures.
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Types of payment gateways
Several types of payment gateways are used to carry out payment processing in different ways. These payment gateways differ in key areas, although they all carry out a similar function in terms of accepting card or wallet payments.
Hosted payment gateway
In this case, the customer is redirected from the merchant site when they start the payment processing stage of their purchase. The payment gateway sends them over the internet connection to a secure payment page hosted by them.
It is a simple option that suits many small businesses looking for security and simplicity, since it’s the payment gateway provider that handles the security aspect and PCI compliance. The customer makes the payment off-site, on a trusted website with robust security measures. This means a slightly less smooth customer experience, but complete safety with the sensitive payment information.
Integrated/direct post
It is a way for merchants to accept payments directly on their own sites. An application programming interface (API) is used that sends the data to the payment gateway without forcing the user to leave the site.
This type of payment gateway serves the purpose of providing a more seamless experience, but it requires more technical knowledge and security responsibility from the merchant. The question of how to create a payment gateway that suits your needs largely comes down to how much technical and security responsibility you want to take on.
Physical (POS) and virtual (online) gateways
These methods of processing transactions refer to whether the payment is made as part of an in-person transaction or online. A physical payment gateway is a piece of hardware where customers make credit card payments using the device in front of them. They normally need to swipe their card or tap the credit card reader or payment terminal with it.
A virtual payment gateway accepts payments online when there is no physical payment terminal in place. To make credit card payments this way, the customer has to enter the details into a secure checkout section on a website.
In both cases, these payment solutions allow the funds to reach the merchant’s bank account quickly.
Payment gateway vs payment processor: what’s the difference?
The payment gateway and payment processor are the two key elements of payment processing. To better understand how they work together to accept payments, we need to see the role played by each of them.
The gateway securely collects the transaction data. In addition, the payment gateway encrypts the customer’s details, such as the card number, expiration date, and CCV. It then sends the encrypted data to the payment processor.
The payment processor and its role
This payment processor then seeks approval from the customer’s bank. If approved, it completes the payment and sends a message to the payment gateway confirming the outcome. The money is then sent to the merchant’s bank.
It is also a good moment to consider the difference between e-wallets and payment gateways. Digital wallets like Apple Pay and Google Pay are becoming increasingly useful in the e-commerce world. However, they work differently from payment gateways and perform a different role in the process of accepting online payments.
What are the benefits of a payment gateway?
This type of payment processing system provides a variety of benefits for credit card payments.
We need to start making clear the difference between a payment gateway and a merchant account. A merchant account is an important part of any business plan, but without a payment gateway, there is no way for you to accept online payments.
The right security measures
A gateway with a payment processor uses a high level of security to protect sensitive payment data. By using encryption, SSL/TLS, and tokenization, the transaction data is kept safe at all times. This process also helps with fraud detection in online transactions. Look for PCI compliance and additional fraud prevention measures.
A convenient approach
It is a convenient approach to making credit and debit card payments. The fact that alternative payment methods like e-wallets can be used is another advantage. It means that clients with diverse payment details can all make purchases easily on the site.
A smooth experience for customers and merchants
By carrying out secure credit card transactions in this way, merchants integrate payments and help customers trust them more. It’s a smoother checkout experience where various payment methods can be used, and the transaction details are kept safe at all times.
How to choose the right payment gateway?
Choosing a payment gateway that works for your business is a crucial step to operating more smoothly. Various factors help you choose a payment gateway to use when you want to easily accept payments.
Integration compatibility with the payment platforms is a crucial area. You want to be able to process payments smoothly using APIs, without disrupting the customer experience.
The cost structure needs to be taken into account. How much does it cost to set up a built-in payment gateway? After those initial setup fees, will you need to make recurring payments or pay monthly per-transaction fees?
PCI compliance is another important feature to look out for. Security also needs to be considered, as you need to process payments safely using fully encrypted payment information.
Other aspects that help you make a decision include the customer support availability and the reliability of the payment services. Is the third-party payment gateway solution scalable for your business needs? Does it accept the payment methods that are most widely used by your customers? Do you need a hosted payment gateway for ease of integration?
Genome’s merchant services
When you’re looking for a reliable partner for your business transactions, Genome has you covered. We’ve launched our merchant services in BETA on September 16th, providing secure and efficient solutions for companies within various industries.
With Genome, customers across Europe can pay you directly via SEPA Instant Transfers, ensuring funds reach your account quickly and securely. Moreover, card payments will be available soon!
Our flexible API integrations enable you to run operations smoothly, while our dashboard provides real-time insights into your merchant account activity. With Genome, you can streamline operations by using batch transfers for pay-ins and payouts, as well as benefit from real-time C2B payment notifications!
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Fully compliant services
Genome is an electronic money institution licensed and supervised by the Bank of Lithuania. As a PSD2 and PCI DSS-compliant payment service provider, you can be sure that our services are completely secure.
It is just part of the services offered by Genome to help your business grow. Multi-currency accounts, Visa debit card issuing, and currency exchange are among the other services that help you operate smoothly.
FAQ
What is a payment gateway in an online business?
A payment gateway is used to process credit card payments or transactions using other methods. This technology confirms that the client bank account has sufficient funds and passes the payment to the merchant account, with confirmation of the approval.
