Understanding Payment Gateways: How They Work and Their Benefits
4 min read
According to the Ministry of Finance, online transactions in India reached a whopping 13,462 crore in 2022-23 and have only increased since. This growth is driven by the rise of e-commerce, online shopping sites, and even physical stores that now accept online transactions.
Payment gateways play a central role in this process. They facilitate payments across several platforms and ensure enhanced security and efficiency. But what exactly are payment gateway services? In this article, we will explore what payment gateways online are, how they work, and how they can benefit your business.
What is a Payment Gateway?
Apayment gateway is a software that facilitates payments from customers to merchants. They read and securely transfer a customer’s payment information to the seller. They work for both online and offline transactions. They usually include multiple payment methods such as credit and debit cards, UPI, and digital wallets.
In an era where online transactions have become the norm, payment gateway integration is essential for your business and crucial for enhancing convenience and customer satisfaction. The primary function of a payment gateway is to ensure that customers have sufficient funds in their accounts, that all information is securely collected and used, and that the merchant is paid on time.
Stakeholders Involved in Payment Gateway Processing
A payment gateway is an intermediary between the customer’s payment method (or card), the business’s website, and the seller’s bank account. Several steps are needed to make a payment using these platforms. These include:
1. Data encryption
When customers place an order on your website, they are directed to a payment page where their payment details are securely encrypted by the web browser before being transmitted to the merchant’s server.
2. Data transmission
After the customer’s data has been encrypted and sent to the merchant’s server, it is transmitted to the payment gateway. The gateway sends this information to the business’s processor using a secure SSL connection.
3. Processing
After the first two steps, the transaction is processed. The business’s processor sends the data to the relevant credit card network, which routes it to the customer’s bank.
4. Authorisation
The customer’s bank verifies whether sufficient funds are available to cover the amount. This is also when fraudulent transactions are identified. The bank will either decline or approve the transaction, after which the merchant can fulfil the order.
These steps usually occur within a few seconds. Beyond security and efficiency, payment gateways play other roles, like tax calculation and fraud screening.
Benefits of a Payment Gateway
Some benefits of using a payment gateway are:
Better customer experience: Customers can easily make purchases from any device, and their transactions are typically processed within seconds.
Reduced transactional errors: Payment gateways can reduce transactional errors through automation and security features.
Advanced security: Most gateways use encryption and authentication protocols, as well as anti-fraud measures, to ensure security for the customer and seller.
Operational efficiency: Payment gatewaysoften improve operational efficiency by using better security measures, centralised management, and faster transactions.
Hosted payment gateways: These are easy to set up and integrate into your website. However, they are managed externally, meaning your business often does not control user experience. Some examples of hosted payment gateways include PayPal and Amazon Pay.
Self-hosted payment gateways: Also known as integrated payment gateways, these allow your business to collect payment information on your website and transmit it to a payment gateway. While it gives businesses better control of their users’ experience, there is an increased responsibility for securing information.
API-hosted payment gateways: Here, a customer’s payment details are collected using an application programming interface, or API, and provide a smooth user experience. However, businesses must ensure they meet the standards for data protection.
Wrapping Up
Payment gateways can significantly impact your business. Their advanced security features, streamlined processing, and speed are just some factors that make them the perfect tool to integrate in a period where e-commerce and online transactions have boomed in numbers.
Before making a choice, it is important to conduct thorough research to find the best payment gateway online that works for your business. Remember to look at the payment gateway types, functioning, and compatibility with different payment methods.
