Guest Post: Everything You Need to Know About Payment Gateways

If you run a brick-and-mortar store and a customer walks in to make a purchase and wants to pay with a credit card, then you must have a payment gateway or POS terminal to obtain that payment information by a card or mobile device. You might lose them as a customer when you fail to accept their card. This is why getting a payment gateway is necessary to increase your number of customers.  

An online payment gateway allows customers to access credit card information. Some of the most popular payment gateway service providers include Paypal, Apple pay and Paytm. In short, any e-commerce or online business that wants to accept payments via credit card and online payment methods must have a payment gateway system. In this guide, we will explore the meaning of a payment gateway, how it works, and the different types of parties involved in the process. 

What is a Payment Gateway? 

A payment gateway is an application that facilitates online payment transactions between merchants (online stores or service providers) and customers by securely transmitting payment information between the merchant and the customer’s bank or credit card company.

When a customer purchases from an online store, the payment gateway securely collects their payment information, such as their credit card number or bank account information, encodes it, and sends it to the payment processor. The payment processor then communicates with the customer’s bank or credit card company to verify the transaction and transfer funds from the customer’s account to the merchant’s. 

Payment gateways often charge a transaction fee for their services, and some may also offer additional features such as fraud detection and prevention and support for multiple currencies. 


How Does a Payment Gateway Work?  

A payment gateway is a wired service that enables merchants to securely accept electronic payments from their customers. Here’s how it generally works: 

  • Customers select a product or service they wish to purchase from a merchant’s website or application. 
  • The customer enters their payment details into the payment gateway, such as credit card or bank account information. 
  • The payment gateway encrypts the customer’s payment information to ensure its security and then sends it to the acquiring bank (the bank that processes the payment) for authorization. 
  • The acquiring bank checks the customer’s account to ensure they have funds to cover the transaction and then sends an authorization code back to the payment gateway. 
  • The payment gateway receives and returns the authorization code to the merchant’s website or application. 
  • The merchant’s website or application completes the transaction and sends a confirmation to the customer. 
  • Finally, the acquiring bank transfers the funds from the customer’s account to the merchant’s. 

Throughout this process, the payment gateway acts as a middleman, facilitating the transaction between the customer, the merchant, and the acquiring bank. It ensures that the payment information is encrypted and secure and that the transaction is authorized and completed quickly and efficiently. 

Who is involved in a payment gateway? 

Although several players are involved in a payment gateway, like the seller, cardholder, issuing bank, card scheme, and acquiring bank, now let’s discuss their role. 

  • Seller- The seller or the merchant is the individual that is paid for selling a product or services from a seller. The purchase can take place online or in-store. 
  • Issuing bank- The issuing bank regulates the customer’s account.  
  • Card scheme- The credit card company manages the credit card, for example, Visa. 
  • Acquiring Bank- The bank looks after the seller’s account. The seller’s account receives money from the customer’s account via payment gateway transfer. 

What are the types of payment gateways?

There are three payment gateways: redirects, front-end checkout, and on-site. Each method has unique benefits and challenges. 

  • Redirects- 

A redirect payment gateway takes the customer to a payment page to complete the transaction. When a seller uses a redirect payment gateway it handles the transaction processing, which can reduce the burden on the seller’s end. Although, it is an additional step for the customer to visit a different page. 

  • Front-end checkout- 

With this, checkout happens on the seller’s website, but the payment processing takes place in the backend. Stripe is the best example of front-end checkout. 

  • On-site- 

An on-site payment gateway handles the entire checkout process on the seller’s site. Because of the complexity, this method is preferred by large businesses. With the on-site process, the seller gets more control over the process and more responsibility for maintaining the front and back ends.  

 Final Thoughts: 

As an online business owner, you must consider all the necessary information about a payment gateway system. Hence, in the above blog, we have discussed all the essential information about a payment gateway. I hope you find this blog helpful.  

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