A payment gateway is the simplest way for a business to collect digital or online payments from their website or app.

Online payments have become a part of our daily lives in no time. We’re transacting online not only through debit or credit cards but through numerous other modes like UPI, netbanking and wallets as well.

Paying online is a fundamental feature that every e-commerce platform in the world offers. And they can provide this facility by integrating with a payment gateway.

Online payments are swift and convenient. They allow you to buy products and services from all over the world. If you are a seller, you can sell to anyone in the world with a decent internet connection. Your customer doesn’t even need to have a computer; a smartphone is enough.

But what exactly is a payment gateway? Is it safe to transact through a payment gateway? Does it make sense for your business to have a payment gateway integration? Let’s find out.

What is a payment gateway

An online payment gateway (PG) is a tunnel that connects your bank account to the platform where you need to transfer your money. A PG is a software that authorises you to conduct an online transaction through different payment modes like net banking, credit card, debit card, UPI or the many online wallets that are available these days.

A PG plays the role of a third party that securely transfers your money from the bank account to the merchant’s payment portal.

To explain this in simpler terms, at the time of buying a book from a popular digital platform like Flipkart, when you make the payment for the book, a payment gateway helps you in the process by transferring your money to Flipkart.

How a payment gateway works

A payment gateway focuses on securing the sensitive information given by the user throughout the process. It ensures security by encrypting data like card and bank details that have been provided by the user.

The following are the basic steps showing how a typical payment gateway works.

Step 1: A customer places his or her order and then presses the Submit or Checkout button, or its equivalent button, on the website

Step 2: Once this happens, the website or the e-commerce platform takes the customer to a payment gateway where he or she enters all the relevant information about the bank or the card they are using to pay. The PG then takes the user directly to the page of the issuing bank or a 3D secure page, asking for the transaction to be authorised.

Step 3: Once the payment gateway gets the approval for the transaction, the bank then checks whether the customer has sufficient balance in the account to make this transaction a success or not

Step 4: The payment gateway sends a message to the merchant accordingly. If the reply from the bank is a “No’”, then the merchant subsequently sends an error message to the customer, telling them about the issue with the card or the bank account. If the response is a “Yes” from the bank portal, then the merchant seeks the transaction from the bank

Step 5: The bank settles the money with the payment gateway, which in turn settles the money with the merchant

Once this process is completed, the customer gets a confirmation message of the order being placed.

As mentioned earlier, the transaction of money involves sensitive information about a person’s bank and card details that are entirely personal to him or her. Therefore, it is imperative to make sure that this information stays safe.

How a payment gateway keeps information secure

A payment gateway ensures the security of the information you put in. Here is a list of things that a PG does to keep your data safe:

  • First things first, the entire transaction is carried out through an HTTPS web address. This is different from the HTTP as the S in the HTTPS stands for Secure. The transaction takes place through this same tunnel
  • As a result of the hash function, the system often uses a signed request from the merchant to validate the request of the transaction. This signed request is a secret word, which only the merchant and the payment gateway know
  • To secure the payment page result of the process, the IP of the requesting server is verified to detect any malicious activity
  • Virtual Payer Authentication (VPA) is something that the acquirers, issuers and the payment gateways are backing to secure the process even more. VPA, implemented under the 3-D secure protocol, adds an additional layer of security and helps the online buyers and sellers to authenticate each other easily

Benefits of using a payment gateway

Using a payment gateway is not just for transferring money, but it has other benefits as well. A PG can allow a merchant to give the user get a better experience.

  • PCI-DSS Wallet – The PCI-DSS compliance makes it secure enough to allow the user to store their personal data in the portal or gateway for recurring payments. For example, if you are a frequent customer on Swiggy, then you can save your bank or card details on their site or app, and the gateway will keep it secure from any cybersecurity threat
  • White-Label Wallet – Some payment gateways allow you to make digital transactions through mobile wallet apps. This is the current trend, as it enables the user to make all his transactions by just sitting at one place. You can bring in your money from the account balance to the mobile wallet app and then further use it to make payments on other apps or websites
  • Fraud Screening Tools – Many payment gateways provide you with fraud screening tools to reduce the risk of losing information. These tools include the Card Code Value (CCV), Card Verification Value (CVV) or even the Address Verification Service (AVS). These tools ensure that there is no fraudulent transaction

A payment gateway focuses on creating a secure pathway between a customer and the merchant to facilitate payments securely. It involves the authentication of both parties from the banks involved.

The most significant advantage of a payment gateway is the fact that it allows millions of users to use it at the same time, making it possible for you to purchase or sell goods and services whenever you want.

TL:DR? Check out the video below.

Liked this article? Subscribe to our weekly newsletter for more.


Saurin Parikh
Author

Saurin heads Content at Razorpay. He's a fintech enthusiast who enjoys long walks. He says he's a "cool dad" but those are just his words, his son has refused to comment. He writes primarily on finance & marketing.

18 Comments

  1. Avatar

    Going through your brilliant blog has furnished me with
    merely the information that I needed. I actually have recently
    been doing analysis on this kind of issue for a while,
    and this seems to have taken a long while to discover a website that gives all the details that I want.

  2. Avatar

    I know this if off topic but I’m looking into starting my own weblog and
    was curious what all is needed to get set up? I’m assuming having
    a blog like yours would cost a pretty penny? I’m not very
    internet smart so I’m not 100% positive. Any suggestions or advice would be greatly appreciated.
    Cheers

  3. Avatar

    You are so interesting! I don’t think I have read through
    something like this before. So wonderful to find another person with some genuine
    thoughts on this subject. Really.. many thanks for starting this up.
    This website is something that is needed
    on the web, someone with a little originality!

  4. Avatar

    Hi, I do believe this is a great web site. I stumbledupon it 😉 I’m going to come back once again since i have saved as a
    favorite it. Money and freedom is the greatest way to change, may
    you be rich and continue to help other people.

  5. Avatar

    Does your website have a contact page? I’m having a tough time locating it but, I’d like
    to send you an email. I’ve got some creative ideas for your blog you might be interested in hearing.
    Either way, great website and I look forward to seeing it expand over time.

  6. Avatar

    I blog quite often and I genuinely thank you for
    your content. This article has truly peaked my interest. I am going
    to take a note of your site and keep checking for new details about once a week.
    I subscribed to your Feed too.

  7. Avatar

    Great web site. Plenty of useful information here.
    I am sending it to a few buddies ans also sharing in delicious.
    And naturally, thanks for your sweat!

  8. Avatar

    I’m not that much of a internet reader to be honest
    but your blogs really nice, keep it up! I’ll go ahead and bookmark your website to come
    back in the future. Many thanks

  9. Avatar

    Thanks for some other informative blog. Where else may I am getting
    that type of info written in such a perfect means?
    I’ve a undertaking that I am simply now operating on, and I’ve been at
    the glance out for such info.

  10. Avatar

    Hi! Тhis is my first viѕit to your blog! We are a team of v᧐lunteers and starting a new
    project in a community in the same niche. Your blog provided us beneficial information to work on. Υou haѵe done a marvеllous job!

  11. Avatar

    I am working on constructing website for Art Sale. Looking for using Razorpay as payment gateway. Can you confirm if there can be multiple merchants on payment gateway? Example if buyer makes payment of Rs100 then can it be directly credited to 2 merchant accounts 50-50%?

    • Saurin Parikh

      The amount will get credited to one account but you can use our other product like Razorpay Route to split the payments you receive.

  12. Avatar

    What’s up, everything is going nicely here and of course every one
    is sharing facts, that’s genuinely good, keep up writing.

Write A Comment