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

Boaz Gam

Boaz Gam

CEO

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11.11.2021
7 min
What Is a Payment Gateway? How Do Payment Gateways Work? Types of Payment Gateways Is a Merchant Account Required for a Payment Gateway’s Operation?
Payment Gateway Benefits for Businesses Selecting a Top-Performing Payment Gateway Payneteasy Payment Gateway: an All-in-One Solution for Your Business

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 ahead for a comprehensive overview of this technology and gain insight into how it works and why your business is guaranteed to benefit from it.

What Is a Payment Gateway?

A payment gateway is a technology that authorizes and processes debit and credit card transactions for online merchants, traditional retail stores, and everyone who runs an e-business. It facilitates 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 only takes a few seconds, there is a multi-step process happening within this time:

  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. The credit card details are passed to the payment gateway, which then encrypts or tokenizes them 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. Then, the credit card schemes conduct another fraud screening and send the transaction data to the issuing bank.
  6. The issuer carries out another fraud check round and authorizes the payment.
  7. The issuing bank then transfers the message of approval or decline to the credit card schemes and onwards to the acquirer.
  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 acquirer will withdraw the payment from the issuer and transfer it 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

There are three main categories of payment gateways:

Redirects

Redirecting is the checkout method that works best for new and small businesses, as it is secure and easy to set up. Such a gateway will take your client 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. However, this can also be a disadvantage as you will have less control over the process. Besides, this method is not seamless, as the customers need to leave your site 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 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 type is ideal for big e-commerce businesses that deal with large sales volumes. From ordering to processing payments, everything will work through the merchant's system.

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

Also, keep in mind that on-site payments come not only with full control over the processes but also with a lot of 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 a type of account that links a retailer, merchant bank, and payment processor for settling credit and debit card transactions.

Some financial institutions that can provide you with a merchant account are:

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

Payment Gateway Benefits for Businesses

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

  • Secure real-time payment processing.
  • 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 provider, you are likely to receive a customizable payment solution that will be tailored specifically to the needs of your business. Find expert tips on how to select a payment gateway below.

Selecting a Top-Performing Payment Gateway

The fact that there are plenty of payment gateway options available on the market makes the process of selection between them tricky. In this section, we have collected a list of questions you need to answer before opting for a service provider.

1. Which Fees to Expect?

It is a reasonable practice to check the pricing plans of the payment gateways you have in mind. What could a service provider charge you for? Possible expenses include:

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

Bottom line: always read through the terms and conditions thoroughly, as you don’t want to encounter unwanted costs.

2. Which Currencies Does the Payment Gateway Support?

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 data, so it cannot be stressed enough how crucial it is for them to follow up-to-date security protocols. The top standards that a decent payment gateway must live up to include:

  • Data encryption. This is the key method that payment gateways use to secure payment data. The credit or debit 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 be compliant with the Payment Card Industry Data Security Standard. This set of regulations lists the best data 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 credit 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. This significantly reduces the risks that payments face.

4. When Can You Access Client Support?

Some payment gateways have 24/7 support included in their services. While your eCommerce or land-based store might not require the client support team to be online round the clock, make sure that it is responsive by checking the customers’ feedback.

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

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

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

Thus, if your business is operating in a high-risk niche, ensure that the payment gateway you choose is a specialized one.

All in all, there are plenty of nuances to think through when selecting the perfect payment gateway for your company. Luckily, there are some 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 options and what exactly to look for in them, you are sure to appreciate what Payneteasy has to offer. Our white-label solution can boast the following characteristics:

  • Branded checkout page
  • Smart traffic routing system
  • Fast and seamless integration
  • Responsive technical support team
  • Flexible software for you to accept all types of payments
  • Reliable fraud prevention algorithms
  • Custom solutions to match your project needs
  • Convenient back office

Since 2016, Payneteasy has been supplying 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.

Our team is happy to answer all your queries regarding Payneteasy’s payment gateway and other solutions we offer, so don’t hesitate to reach out to us!

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