Payment Gateway- A simple guide about its types, integration and functioning

payment gateway

What’s a Payment Gateway?

A payment gateway is an interface that allows you to process payments directly through your bank account. Set on an online platform, an online payment gateway lets you make transactions through internet banking, debit and credit cards, UPI or online wallets, by connecting your bank account directly to the platform you’re required to make payment to. It functions by transferring key information between websites or mobile devices and banks or payment processors, and vice versa, making online payments a smoother and user-friendly affair. To ensure the security of your transaction and eliminate fraudulent activities on your website, an online payment gateway makes sure to encrypt all the sensitive information which comprises card and bank details.

Simply put, an internet payment gateway is an online representation of the real-time point of sale terminal that you must have seen in retail stores. A payment gateway’s prime role is to process payments from online customers dropping at your web store.

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How does payment gateway work?

Here are the basic steps that will give you an insight into the functioning of a typical payment gateway.

  1. Your customer places the order by pressing submit button or checking out, on your website.
  2. When the customer clicks on the check out button, he is routed to the payment gateway or the payment page where he is required to input his bank details in order to proceed with the payment. The gateway then takes the customer to the issuing bank’s page where he is required to authorize the transaction. This page is extremely secured and encrypted to avoid the misuse of the user’s banking details.
  3. Post authorization, once the payment gateway gets approval for the transaction, the bank checks to make sure that the customer holds enough funds in his account before processing.
  4. The processing message is sent to the customer according to the bank’s response. If the bank is unable to process the transaction, the reason for the failure is communicated with the customer. Similarly, if the bank can successfully process the transaction, the funds are directed towards the merchant hereby, completing the transaction.
  5. Finally, the bank settles the money with the payment gateway which in turn, makes the settlement in the merchant’s account, providing the customer with a confirmation message of the order placed.
How payment gateway works

Types of transactions in a Payment Gateway

Keeping the needs of your business in mind, here are the payment transaction types that merchants need to consider before integrating a payment gateway with their e-commerce site.

  • Authorization-Authorization determines a customer’s ability to pay and find out if there are enough funds in their card to process the transaction, without transferring funds. In cases where the merchant needs time to ship the products and needs to guarantee fund transfer by the card issuer, authorization comes in handy.
  • Capture-Capture works post authorization of the funds. When you’ve sold a product online that takes time in manufacturing for shipping, you first need to authorize the payment before capturing it and settling it in your bank account.
  • Sale-Sale is an amalgamation of authorization and capture. When you fulfil your orders immediately, you use sale transaction type where the money is charged and transferred at once.
  • Refund-Whenever an order is cancelled due to some reasons, the merchant is required to refund the transaction and submit it for processing. A refund is most likely to be of the same amount as authorized and can only be applied to sale and capture transactions.
  • Void- Similar to refunds, a void transaction can only be made in case of an un-settled or un-captured transaction. Where it may take 3-5 days to process a refund, void transactions will disappear from their customer’s account statement within 24 hours and are much cheaper, in comparison.

Understand the Payment Settlement Process

Types of Payment Gateway-

Before you indulge yourself into integrating a payment gateway solution for your website, it is essential that you hold an in-depth knowledge about which payment gateway works best for your business.

Hosted Payment Gateway-

A hosted payment gateway directs your customer away from your website’s check out page and redirects them once the payment is processed. When your customer clicks on the gateway link, they are directed to the Payment Service Provider (PSP) where they fill in their payment details and are then redirected to your website to complete the check out process.

Pros:

  • The transactions made are extremely secured with PCI DSS compliance and generally offer customer fraud protection.
  • Easy to set up and simple to use, most users are acquainted with this type of payment gateway solution.
  • They are customizable, as in, you could add your logo for reassurance.

Cons:

  • With gateway being external, it is impossible for merchants to retain the customer and control the whole user experience.
Non-hosted Payment Gateway-

A Non-hosted or Integrated Payment Gateway eliminates the process of routing your customer to a PSP thereby, allowing them to complete the payment process on your website itself. Whenever a merchant is scared to lose its customers and wants to fully control the user experience, they go for an integrated payment gateway. A non-hosted gateway allows customers to directly enter their card or banking details on your checkout page and process payments through APIs or HTTPS query without being redirected to another PSP.

Pros:

  • Fully customizable and provides full control over your customer’s experience and the user interface of the payment.
  • It is highly versatile as by using an API you can integrate your internet payment solution with any device that can be connected over the internet.

Cons:

  • Security is a major factor here. The merchants themselves are responsible for purchasing the SSL certificate and getting a PCI DSS compliance to provide their customers with seamlessly secured interface.

Overview of an E-Payment System

Which Internet Payment Gateway is right for you?

Integrating the most apt payment gateway solution for your website may sound challenging. With a myriad range of internet payment gateways being present out there, here are a few things to keep in mind before you settle down with one.

  • Security- When choosing a payment gateway, the first thing you should look for is whether the gateway is PCI DSS compliant or not. Select the payment gateway that prioritizes security and uses highest bit encryptions. This is essential to keep your customer’s data safe while avoiding fraudulent activities on your website.
  • On-boarding Process- Make sure you don’t go for a payment gateway with long and comprehensive on-boarding timeline. Look for a payment gateway that requires a maximum of 10-15 days to complete the entire on-board process to get you going.
  • Seamless Integration- Before you choose a payment partner, always make sure whether the platform offers quick and easy integration and is merchant and user-friendly? If your gateway provides you with shopping cart plugins and mobile SDKs, the more effortless your user interface will be.
  • Mobile Optimization-Keeping current trends in mind, mobile optimization undoubtedly, tops the list for most of us. Without proper mobile optimization you could lose a major chunk of your potential business.
  • Customer Support- Every good payment partner believes in servicing their clients’ problems 24*7. Always look for a gateway that provides you customer support and solving your problems irrespective of what time of the day or night it is.

Finding and integrating the right online payment provider is the key decision that you need to take for your business. By leveraging a payment solution built to fit the needs and demands of today’s customers, Atom has designed a unified payment platform that focuses on delivering enhanced online customer experience and provides a frictionless journey every time you decide to pay through our portal.

10 points to consider before choosing a Payment Partner

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