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. 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 is 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?
A Payment gateway is a tunnel that connects your bank account to the platform where you need to transfer your money. It 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 Payment gateway plays the role of a third party that securely transfers your money from the bank account to the merchant’s payment portal.
Let us understand what is payment gateway 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 does a Payment gateway work?
Now that you have a basic understanding of what a payment gateway?, let us discuss how it 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.
- 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.
In case you are wondering how payment gateways make money, they do so by taking a small percentage of the transaction or a fixed fee known as Merchant Discount Rate (MDR). It is basically an e-commerce service that allows direct or credit card payments online and charges a small fee for that. This is the more or less that payment gateway business model.
Using an online payment gateway, businesses can accept payments through various payment modes. One of these payment modes is through credit and debit cards. Click here to read about the lifecycle of an online card payment.
How does a Payment gateway keep information secure?
A payment gateway ensures the security of the information you put in by encrypting the data. Now that you have a pretty good idea of what is payment gateway and how it works, let us look at a list of things that a PG does to keep your data safe:
- First things first, the entire payment gateway transaction flow 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 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 with each other easily.
Benefits of using a Payment gateway
Using a payment gateway is not just for transferring money. It has other benefits as well. A PG can allow a merchant to give users a better experience. It not only simplifies the payment process but also offers a safe checkout service.
We have already discussed what a payment gateway is. It is time we take a look at some of the ways a payment gateway leads to secure transactions.
- 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.
How to choose a Payment gateway?
Many business owners, founders and product managers find it difficult to choose the right payment gateway for their business.
After knowing what is payment gateway, you should know that a good payment gateway will have the following features:
- Good success rates
- Multiple payment modes
- Easy and quick onboarding
- PCI-DSS compliant security
- Insightful and intuitive dashboard
- Competitive pricing options
- Free setup and zero maintenance charges
Apart from these, you should look for a payment gateway that has a bundle of these additional features:
- Host of products and features that allow businesses to accept payments without a website or an app.
- Ability to accept recurring payments for a business’s subscription products.
- Facility to run offers, offer EMIs and discounts to customers.
And more. At this point, you should have a good idea of what a payment gateway is and how payment gateway works. Read this comprehensive article on how to choose a payment gateway.
Frequently asked question
1. What is the role of a payment gateway?
To answer the question, what is a payment gateway? – A payment gateway is a service that allows businesses to accept payments from customers online. It provides a secure connection between a business’s website and a payment processing company, which handles the payment processing for the business.
2. What are the types of payment gateway?
After understanding what is payment gateway, it is essential know its types. The types of payment gateway are Hosted payment gateways, Self-hosted payment gateways and API-hosted payment gateways.
3. How to add payment gateway to website?
Adding a payment gateway to your website is a process that varies depending on the payment gateway you choose. Generally, you will need to create an account with the payment gateway, obtain merchant credentials, and then integrate the payment gateway into your website.
4. What is difference between UPI and payment gateway?
You cannot fully understand what is payment gateway if you don’t know how it is different from UPI. UPI is a payment system launched by the National Payments Corporation of India (NPCI) in August 2016. It allows customers to make instant, inter-bank payments using a unique virtual address. Payment gateways are companies that provide a secure payment gateway service for e-commerce transactions.
5. What is payment gateway charges?
A payment gateway pricing vary depending on the payment gateway, but typically include a processing fee and a monthly fee.