What is a Payment Gateway ِAnd How It Work Exactly?
Ever questioned how online businesses process online payments?
If the answer is yes, read on.
We are going to investigate payment gateways: The technology used in an online store and provide useful information for when you are setting up your e-commerce business.
So, the point here is that processing debit or credit card payments is simple when done in brick and mortar; you present your credit card and it gets processed at a POS terminal, and your transaction is complete.
However, since e-commerce transactions are completed over the internet, there’s no way a customer can physically present their card.
But when it comes to online payment, e-commerce transactions are not done the same way, as you cannot physically present your credit card to process the payment. Instead, you deal with a digital equivalent to a POS terminal, hence the introduction of a payment gateway.
What is a Payment Gateway?
A payment gateway is what authorizes and deal with debit/credit card payments for online retailers. This could be realized by encryption of sensitive data and sending it between a portal (Like a website or a mobile app) and the bank or the front-end processing entity.
How Does a Payment Gateway Work?
The function of a payment gateway is making the communication between a website, payment processor and the bank that issued the credit card used in the buying process. One very important feature of the credit card is the security, manifested in the encryption of the transaction data between the merchant and the issuing bank.
Although it happens within few seconds only, there are a number of steps that take place; the customer is asked to visit a secure payment page where the transaction data is input and encrypted to be sent to the payment processor through the gateway.
The payment processor then communicates with the card-issuing bank, which replies with either an approval or a decline. Such a reply then arrives at the payment gateway which forwards it to the website. Finally, the information shall be interpreted into a response that appears on the transaction window. If approved, the online merchant shall fulfill the order.
How secure are payment gateways?
It’s crucial that you maintain the highest kind of security before asking your customers to input their card data. Data security is important as to prevent breaches that could be highly threatening to both your customers and your business.
Luckily, payment gateway providers take security quite seriously.
Reputable payment gateway suppliers will be level 1 compliant with the Payment Card Industry Data Security Standard (PCI DSS).
Highly prestigious payment gateway developers should be level 1 compliant with Payment Card Industry Data Security (PCI DSS) which is the strictest standard out there and require many security routines and assessments.
Are payment gateways susceptible to fraud?
Payment gateways can be more secure than Fort Knox but that won’t necessarily protect you from fraudulent transactions.
Payment gateways can be extremely secure, but that doesn’t mean that fraudulent transactions won’t be possible.
The good news is payment gateways typically come with dozens of configurable fraud prevention tools. There’s far too many to talk about in detail so we’ve picked out three popular tools you may have heard of.
But rest assured, for payment gateways normally are prepared with a lot of fraud prevention tools. Here are some of them.
The first is 3-D secure. Which is the name of security protocols provided and operated by card networks. Visa uses Verified by Visa, Mastercard’ uses SecureCode, American Express uses Safekey and so on.
The details vary depending on the network, but it works by entering an additional password separate from their password for the website if the password doesn’t match the records registered in the network, the transaction will be then declined. Such an additional test is to make sure that the customer is the cardholder and not someone who has stolen the card or hacked the account.
Second, velocity checks by IP address. This tool basically keeps track of how many times a particular IP address has been used to place an order. If one IP address attempts to place a dozen different orders with a dozen different credit cards in the space of one hour, it’s highly likely that a fraudster is working through a pile of stolen cards.
The second tool, velocity, verifies the activity via IP; it tracks how many times an IP has attempted to place an order. If such IP was observed to be placing so many orders with a lot of different credit cards within one hour, the IP will be blocked for a certain period of time.
The third tool we have is location blocking, as certain countries have higher fraudulent incidents more than others, such as developing economies. So, if for example your business is in one place and you receive a lot of transactions, say from a country in Africa, it’s more likely to be a fraudulent attempt.
The Most Popular Payment Gateways
It’s crucial for an e-commerce business to work on growing its capability to earn, also it’s important to know that having the proper mix of payment gateways for your store can be a catalyst in generating more revenue, as the opposite could cause lost conversions and sales that you very much need.
As you use some of the popular payment gateways, you could also invest in using additional gateways that might be less popular yet are a better match for your target market in different countries. Some of the popular options are:
How to Choose the Right Payment Gateway for Your Online Store
With may payment gateways at your disposal, it could be tricky to decide on which ones to integrate your business with, so to be more certain, you could ask yourself the following:
What is my target customer’s preferred method of payment?
It’s very important that you understand which method of payment shoppers prefer to use, which could make all the difference between sealing the deal or not, so it’s very useful to do your research to understand paying habits and preferences, especially if you are targeting other countries. That way you will get to know what kind of payment gateways to adopt on your online website.
How does this gateway affect my checkout user experience?
It’s vital that you make the checkout experience as short and as easy as possible. For example, you could use payment gateways that auto-populate user’s information using a certain API to bring the shopper a step closer to checking out. Avoid prolonging the checkout as much as you can, and you will notice a decrease in drop-off rates.
How easy is it to integrate with this payment gateway?
At all costs, you would want to avoid a custom checkout experience while integrating with a payment gateway which will lead to more difficulty in streamlining across all your devices besides the hefty costs you will have to pay.
Will this gateway grow with my business?
Choose to work with agile provides who will be willing to keep up with changing market conditions and innovate as needed with the emerging trends. Also, don’t forget to observe how transaction fees are changing as your sales volume increases too.
Is this the most cost-effective option?
Each payment gateway charges differently with transactions. So here look for 2 goals: To streamline the checkout process in all channels with the most common payment gateways and to make sure the transaction costs don’t negatively affect the profit margins. For your reference, here are the commission fees charged by some of the most popular payment gateways:
- PayPal:$0.10 per transaction
- net:2.9% + 30¢ per transaction
- Stripe: 4% + 20p for European cards, 2.9% + 20p for non-European cards
- Square:75% per swipe, dip or tap, 3.5% + 15¢ per keyed-in transaction
- Worldpay: 75% + £0.20 (pay as you go)
- SecurePay: 4% per transaction
- Braintree: 9% + £0.20 for most transactions
- com:2.4% + 30¢ (UK), 2.9% + 30¢ (US); country-dependent