What is Payment Gateway- How does it work?

Payment Gateway

A very common word used in the online retail space, ‘payment gateway’ is doing the round ever since. And before we dig any further, let’s discuss one of the most searched keywords in the e-commerce terrain, “What is a payment gateway?”

It is application software, that enables online retailers (big or small), accept payments via the internet through their website. Ranging from the acceptance of credit or debit cards, EMI, UPI, and net banking, payment gateways spoil you for choices with their array of payment options.

With payment gateway in the picture, online retailers have increased their business reach and are catering to customers online followed by huge revenue growth. The online retail sales are forecasted to grow at 31 percent year-on-year, this year it is expected to touch down $32.70 billion, India is expected to become the world’s fastest growing e-commerce market.

How does payment gateway work?

  • The process begins with the buyer initiating the purchase of a product or service and moving to the checkout page.
  • Once at the checkout page, the buyer selects from the array of payment option ranging from credit or debit card to UPI Payments and many more.
  • On selection of preferred payment option, the buyer feeds in the requisite details, like if it’s a card payment, he needs to enter the requisite card details and if its UPI, then the VPA.
  • Details once entered are forwarded to the buyer’s bank by the acquirer (here the payment gateway provider) and upon authentication of details and confirmation, the buyer bank sends a message of success or failure.
  • Upon a successful transaction, the payment gateway service provider (the acquirer) deposits the agreed amount in the merchant’s account in two working days.

Overview of an E-Payment System

Types of Payment Gateway-

  • Hosted Payment Gateway
  • Non-hosted Payment Gateway

Hosted Payment Gateway: These are payment gateways, that create a look-alike page of the website and as soon as the customer clicks on the payment gateway link they are carried away from the website and are redirected to the Payment service provider page. Once at the payment page, the customers fill in all the necessary details and post authentication of success or failure they are again redirected to the website to complete the payment cycle.

Irrespective of the size of the business, a lot of business houses today prefer the Hosted Payment Gateway because these are trustworthy, backed with bulletproof online security, PCI DSS compliant with the highest encryption ensuring complete safety and reliability of transaction.   

Non-hosted Payment Gateway: These are payment gateways that are integrated with the website itself and are not redirected to the payment gateway service providers page on clicking on the payment link. Usually, big houses that that are PCI DSS compliant and have a high level of security usually prefers the non-hosted payment gateway. Depending on the nature of the transaction and the level of security included, online retailers can choose from both the above-stated payment gateways.

How to choose the right payment gateway:

  • Check for security. Look for Payment gateways that are PCI DSS compliant and use higest bit encryptions. This will not only keep your data safe will but also protect your online business from fraudulent activities happening on the website.
  • Look for the total time that is involved in the onboarding process. Don’t settle for anything more that is more than 10-15 days!
  • While choosing for a payment partner, consider points like, is the integration process easy and merchant friendly? Do they support shopping cart plugins? Do they have mobile SDK’s? and many more. The easier the Integration process the better it is!
  • Undoubtedly, the Mobile optimization feature tops the list for many of us. And why not! Without proper mobile optimization, one could lose out to the potential business.  
  • Last but not least, always settle for Customer support that is made available to you 24*7.

10 points to consider before choosing a Payment Partner

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