Payment Gateway from A to Z: What It Is, How it Works, and More

Every business owner aims to provide a top-notch shopping experience for the clients. While excellent customer support and the quality of products and services delivered are extremely important, no commercial platform would be successful without decent payment security measures. One of the essential tools to conduct and safeguard the purchases at your store is a payment gateway.

Read this article with a comprehensive overview of this technology to gain insight into how it works and learn why the business you own is guaranteed to benefit from it.

What Is a Payment Gateway?

A payment gateway is a technology that authorizes and enables credit card transaction processing for online merchants, traditional retail stores, and everyone who runs an e-business. It allows a smooth flow of payments by encrypting sensitive information and transmitting it between the merchant, consumer, and acquirer.

How Do Payment Gateways Work?

As you can see, payment gateways are essential for the efficient operation of businesses. But how exactly do they function? Although the transaction takes just a few seconds, there is a multi-step process happening within this period:

1. The client selects an item or service and proceeds to the payment page.
2. The consumer enters their credit card information on the payment page and initiates the transaction.
3. Once it’s done, the entered credit card details are passed to the payment gateway, which then performs encryption or tokenization and carries out fraud checks.
4. The gateway forwards sensitive credit or debit card data to the acquiring bank, which passes it on to the credit card schemes, such as Mastercard or Visa.
5. After that, the credit card schemes conduct a fraud screening once again and send the transaction information to the issuing bank.
6. The issuing bank conducts an extra check and authorizes the payment.
7. The issuing bank then transfers the message of acceptance or decline to the credit card schemes and onwards to the acquiring bank.
8. The acquiring bank forwards the message to the payment gateway, which in turn sends it to the merchant.
9. If the transaction is approved, the acquiring bank will accept and withdraw the payment from the issuing bank and transfer the funds to your merchant account.
10. Depending on the transaction’s outcome, the merchant displays a confirmation message or asks the consumer to retry making the payment.

Keep in mind that you are likely to receive the funds the customers paid for the purchase in about three workdays. This is called the settlement process, and its speed depends on the agreement you have with the payment gateway service provider.

Types of Payment Gateways

The three main categories of payment gateways are as follows:

Redirects

Redirecting is the checkout method that works best for new and small businesses, as it is secure and easy to set up. It is a gateway that will take your customer to a separate page to complete the checkout and accept the payment.

When using redirect gateways, you can rely on them to do the hard work related to data security, but it can also be a disadvantage as you will have less control over the process. Besides, this method isn’t as seamless as other options, as the customers need to leave your website page to finalize the purchase.

Checkout On-Site, Accept Payments Off-Site

With this type of gateway, the checkout is conducted on-site without any redirects, making the shopping process more convenient for the customers.

However, the system will still redirect customers to a separate payment page to pay and complete the transaction. That is, data security will be your responsibility, and the website must be PCI DSS-compliant, which requires additional resources and technical expertise.

On-site Payments

This gateway is ideal for big eCommerce businesses that find themselves dealing with large sales volumes and an intensive flow of payments. From the order placing experience to the processing of payments, everything will be conducted through the merchant's system.

While such an approach ensures fast, secure, and reliable payments, it has a rather complex infrastructure. Thus, you will need to possess advanced technical knowledge or to find an expert web developer to customize it. Luckily, some gateways, such as Payneteasy, include set-up and customization as a part of the package.

Also, keep in mind that payments conducted through your website page come not only with full control over the processes but also with many responsibilities.

Is a Merchant Account Required for a Payment Gateway’s Operation?

A business is required to set up a merchant account to accept card payments and use payment gateway services. Essentially, it is an account that links a retailer, merchant bank, and payment processor for settling both credit and debit card transactions.

The examples of financial institutions that may provide you with a merchant account include:

• PSPs
• Payment gateways
• Acquirers
• Payment processors
• High street banks
• ISOs

Note that a wide range of merchant account options is available, with each being tailored to different commercial needs and various kinds of payments. Here are some examples:

• eCommerce merchant account. These cater to companies that accept payments through their websites or apps. They often integrate with online shopping carts and payment gateways for the sake of processing payments securely through the Internet.
• Retail merchant account. As the name suggests, it is designed for companies with physical storefronts where customers pay in person. The fees associated with these accounts may differ from those for online payments because of the lower risk of dishonest activity in face-to-face commercial interactions.
• Mobile merchant account. With the rise of mobile payment apps, certain merchant accounts are specifically tailored to accepting payments made with smartphones and other mobile devices. These often require integration with mobile payment platforms like Apple Pay, Google Pay, and Samsung Pay.
• International merchant account. For companies that operate globally, an international merchant account enables the acceptance of payments in multiple currencies from customers around the world. Thus, they typically facilitate currency conversion and are compliant with cross-border regulations.
• Aggregator merchant account. Often used by small entities and startups, they enable multiple merchants to use a single merchant account. Payment processors or aggregators pool payments from different merchants into one account, streamlining the onboarding process. Yet, they may feature limitations and higher fees.
• MOTO (Mail Order/Telephone Order) merchant account. These are suitable for entities that primarily take payments over the phone or via mail orders. Those payments are quite rare nowadays and are considered riskier than retail experiences due to the absence of physical cards and customer verification. Thus, the associated fees may be higher.

Remember that it is crucial to start researching and comparing different merchant account providers in advance, as well as to pay attention to the offers’ pricing and policy details to make an informed choice that will remain viable in the long term.

Payment Gateway Benefits for Businesses

If you are still unsure about whether or not the business you own would benefit from adopting payment gateway technology, here is a list of the many advantages that come with it:

• Reliable real-time payment processing services.
• Simplified report generation, payment settlements, and account reconciliation.
• Easy integration with the business’s existing payment channels.
• Fraud and risk management functionality.
• Dispute management tools.

Besides, if you choose the right service supplier, you are also likely to receive a customizable payment solution tailored specifically to the requirements of your business. Read on to learn about the most effective ways of selecting the right payment gateway for your company below.

Selecting a Top-Performing Payment Gateway

The fact that the market features many payment gateway variations makes the process of selecting the best one between them tricky. In this section, we have collected a list of questions you need to answer before opting for a service provider.

1. What Kind of Fees to Expect?

It is best practice to check the pricing plans of the payment gateways you have in mind. What’s more, you need to know what a service provider could charge you for. The examples of some of the possible expenses include:

• Set-up fees
• Processing costs
• Cap fees
• Chargeback fees
• Transaction commission
• Monthly and annual charges

Bottom line: you always have to read through the services’ terms and conditions thoroughly, as you don’t want to find yourself encountering unwanted costs you haven’t heard of before in the days to come.

2. Which Currencies Does the Payment Gateway Support?

As we mentioned before when talking about merchant account variations, if you own a business that operates on an international scale, it is vital that the payment gateway you select processes multiple currencies.

3. What Are the Fraud Prevention Measures?

Payment gateways handle sensitive information, so it is crucial that they follow up-to-date security and privacy protocols. The top policies that a decent payment gateway must live up to include:

• Data encryption. It is the key method that payment gateways use to secure payment information. The credit card details are encrypted through a public key and can only be deciphered by the payment gateway’s private key.
• PCI DSS. Payment gateways must stay in line with the Payment Card Industry Data Security Standard. This set of regulations lists the best security practices and aims to create a safer card payment environment.
• Secure Electronic Transaction. SET is a protocol that safeguards the transfer of cardholder details during payments by preventing merchants from accessing sensitive data.
• Secure Socket Layer. The SSL protocol creates an encrypted channel that ensures the safe transmission of sensitive information.
• Tokenization. This technology substitutes a card number with a random string of characters. The resulting unique code is called a “token”. In case a data breach occurs, fraudsters won’t be able to decode it and conduct unauthorized payments using it. As a result, tokenization technology significantly reduces the risks that payments face.

4. When Can You Access Client Support?

Some payment gateways have 24/7 support for users included in their services. While your eCommerce or land-based store might not require the customer support team to be online round the clock, make sure that it is easy to contact, fast to reply, eager to help, and protects your privacy by checking the customers’ feedback.

5. Can This Payment Gateway Process High-Risk Transactions?

Most payment gateways don’t deal with payments associated with high-risk commercial industries, such as:

• E-cigarettes
• Drug supplies
• Alcohol
• Travel
• Weapons
• Adult entertainment
• Debt collection, and more

Thus, if your business is operating in a niche like those mentioned above, ensure that the payment gateway you end up picking is specialized.

All in all, you have to think through plenty of details when selecting the perfect payment gateway for your company. Luckily, there are multiple renowned solutions you can rely on.

Payneteasy Payment Gateway: an All-in-One Solution for Your Business

Now that you know how to navigate between payment gateway variations and what exactly to look for, you are sure to appreciate what Payneteasy has to offer. Our white-label solution has the following characteristics:

• Branded checkout page
• Smart traffic routing system
• Fast and seamless integration
• Responsive technical support team
• Transparent terms, conditions, and fee policy
• Flexible software for you to accept all payment options
• Reliable fraud prevention algorithms as well as advanced security and privacy measures
• Custom offers to match your business needs
• Convenient back office

For over seven years, Payneteasy has been providing tailor-made payment solutions to PSPs, banks, financial institutions, and more. We are continuously upgrading our services to ensure they correspond to the latest security standards and our customers get the most positive experience possible.

Our team is happy to answer all your queries regarding Payneteasy’s payment gateway and other available solutions, so don’t hesitate to contact us if you require any help!