In this article, we’ll answer what a payment gateway is, why you need one, and what the best one for your business is. A payment gateway is an e-commerce service that processes credit card payments for traditional and online stores. This software makes a transaction possible by communicating information about it.
Payment processing functionality enables businesses to accept online payments, including credit cards. It links the merchants with the bank’s processing platform. Without payment gateway integration, users can’t pay for the products or services they are buying online. You have to be able to accept electronic payments for any business niche.
Payment Gateway Functions
- Authorization Request. The payment processor sends the transaction data to a card association. The credit card’s issuing bank views the authorization request and ‘approves’ or ‘denies.’
- The web browser encrypts the data. The gateway then sends the transaction data to the payment processor utilized by the vendor’s acquiring bank.
- Filling the order. The processor forwards an authorization pertaining to the merchant and consumer to the payment gateway. Once the gateway obtains this response, it transmits it to the website/interface to process the payment.
- Delivery address verification
- Computer fingerprinting technology
- Velocity pattern analysis
- AVS checks
- Identity morphing detection
A merchant account is a type of bank account that makes it possible for businesses to accept payments in multiple ways. A merchant services account is an agreement between a merchant bank, a retailer, and a payment processor for the settlement of credit or debit card transactions. If we talk about an online store, the merchant account becomes virtual. Then, this is a virtual bank account between the processor, retailer, and merchant bank. It’s also known as an Internet merchant account.
There are alternatives to merchant accounts, like a credit card reader or Paypal. The latter is a popular solution for online payments that don’t require a merchant account. It is perfect for businesses looking for a smooth, fast, and cheap start to online transactions, but there are still fees to accept online payments.
When choosing a payment gateway, you first decide between a modern or a classic one. Payment gateways have changed a lot in the last few years. In the past, gateways used to require store owners to apply for merchant accounts. If you didn’t have one, you couldn’t get the payment gateway to transfer funds into your bank account.
Today, many payment gateways don’t require a merchant account. They deduct funds directly from your customers’ credit cards or bank accounts, validate them, and then they’re deposited right in your account.
All you need is a valid bank account with a modern payment gateway. The payment gateways that require a merchant account are called “classic” gateways.
Which type is better?
It depends. The fees on classic payment gateways are lower, but the setup is more difficult. Authorize.net is a “modern” payment gateway, for example. The advantage of modern gateways is that you won’t need to do anything special or change bank accounts to get up and running on the payment side, under most circumstances. What is more, it’s usually fast to integrate these gateways with your store.
The security of the network is of paramount importance. Your customers won’t worry that their financial and personal data will remain secure when purchasing from your store. When selecting a payment gateway, look for PCI compliance, because this is critical when accepting credit cards online.
Here is a brief outline of payment gateway security layers:
- High-level encryption
- Digital signature
- Dynamic IPs
To avoid breaches, every payment gateway has high-level encryption (SSL encryption 128 Bit encrypted. The second layer of security is the digital signature; your account is safe with it even if a hacker got your ID. Then come the Dynamic IPs. Access to your account will be denied if it is used from another IP address.
What happens to the ownership of your customer’s data if you decide to leave your gateway? This depends on whether your gateway is hosted or integrated. An integrated payment gateway connects to your online store via the gateway’s provided API. The most significant benefit of this is that customers never have to leave your e-commerce site to input payment information and submit orders.
If you’re using a hosted gateway, your customers will be redirected to the payment processor’s platform to input their payment information. This type of gateway is excellent for a new store and easy to set up, but conversion rates might drop if customers aren’t familiar with the processor.
The customer experience
Customers should find the purchasing process from your online store or service convenient and expect to offer different payment methods with your software. If it requires too much time, too many steps, or too much personal information, your customer may decide not to buy from you and go looking elsewhere. Always look for a payment gateway that lets your store accept all major credit and debit cards and which is integrated with all major shopping carts. Last but not least, the payment gateway should be optimized for mobile users as well.
Here’s how to choose the best payment gateway:
1. Verify your business model
Look at the list of businesses your preferred gateway supports. Your type of business should be mentioned.
2. Is it internationally accepted?
Make sure your payment gateway of choice works internationally. Many use the advantage of the global market, and your buyers might come from a foreign country, so global payments should be allowed.
3. Is it future proof?
It might be a good idea to integrate cryptocurrencies in your online store, website or app if you’re in it for the long haul.
4. How is the customer service?
Check whether the provider offers live technical support, at least within standard working hours, so that you can quickly resolve any technical problems.
5. What are the fees?
Gateways have different fee structures, so make sure the one you’re selecting fits your budget. Shop around to see different payment gateway offerings.
Our Last Word
The right payment gateway will make it easy for customers to buy your products. It takes time to choose the right one. Hopefully, the information in this article will make the process of selecting a little easier.