A payment gateway is a merchant service which is provided by an e-commerce application service provider. It authorizes credit card or direct payments processing for e-businesses, bricks, online retailers, and clicks. This service sends credit card information from a website to a credit card payment network securely and then it returns the details of the transaction and responses from the payment network back to the website.
A payment gateway may be provided by a bank to its customers or can also be provided by a specialized financial service provider as a separate service, such as a payment service provider. Payment gateways also facilitate communication within the bank.
Why you need a payment gateway
You need a payment gateway to act as a go-between for your website and all the banking systems. This process is totally seamless because the customers do not interact with the gateway. The gateway submits the credit card details and securely sends the information through the financial networks to the merchant account.
You might be wondering how the customers are going to pay you now. The first method is paying through a website. If you want to go for this method you are going to need to have some kind of shopping cart or website integrated to the payment gateway and merchant provider.
As soon as a customer adds products to their basket and wants to pay, they will be taken to a secure payment page to be able to enter their credit card details.
The second way would be to pay through a virtual terminal. In order to take credit card transactions over the phone , all you need to do is simply entering the information of customers credit card onto a secure website that you access and submit the information to complete the transaction. The virtual terminal is like a payment page in reverse. However instead of the customer entering their details on your website, you complete it for them.
Different types of payment gateways
The definitions given below can help you understand the the difference between different types of gateways.
Hosted payment gateways
The first type takes a customer to payment service provider from your checkout page. Once they have payed they will go back to your website in order to finish checkout process. Using this kind, the payment gateway site needs to handle refund and cancellation of payment.
Pro/Self hosted payment gateways
Using this type of gateway you need to ask the payment details from the customer at your own website. After that you need to send the collected data to the payment gateways URL. In case of recurring the next payments is deducted by payment gateway itself and send notification for the same. Refund and cancellation process need to be initiated from Payment Gateways website. This is easy for customers but the merchant has to take care of the cardholder data.
API / Non Hosted Payment Gateways
This type of payment gateway gives you full control over your checkout process. Customers are allowed to enter their credit or debit card info on your checkout page directly. This way you will have the responsibility of PCI DSS Compliance and you might need to purchase SSL certification for better security.
Local bank integration
These are also hosted payment gateways working in a straightforward manner. They will redirect user to payment gateway website where they can enter the info and details finally they will go back to your website. Unfortunately, this type does not support, cancellation, recurring payment and refund so you will have to do them manually.
Direct Payment Gateway
These kind of processor mainly asks information on your website and supports both fixed and recurring payments. Some payment processors do not support instant payment notification. They only inform whether the credit card is valid or not. In this case to find out whether the payment is received or not, the system needs to make an inquiry. This way there is no redirection to payment gateway.
Platform Based Payment Gateway Solutions
This type of payment gateway provides a platform to sell physical and digital products from the server directly. The checkout button will redirect the users to this platform. Buyers most probably will complete a purchase in their preferred language, and currency. This way you can make conversion better by displaying the prices in shoppers’ local currency.
Why online payments?
With the great growth of online businesses and eCommerce stores, there are many payment schemes in the world. You probably have heard stories about people making their fortune selling online. Here we are going to explain why online payments are a perfect option.
First of all selling and shopping online can be very quick, easy and painless. So it’s faster and more convenient for both the seller and the customer. You business will benefit from accepting debit and credit cards since taking card payments means you can benefit from the total payment market opportunity, than just limiting your business to the amount of cash that your customer’s have in their pockets.
The next step would be to process payment. In order to do so you need a merchant account and a payment gateway. You need the merchant account to verify your credit card and customer information including checking whether the details supplied are correct (address, card number etc.) or whether the card has been reported stolen, or has enough funds. The merchant account deposits funds to your bank account, in case the transaction is successful.
A merchant account is a special kind of bank account in which holds the funds from card sales before transferring them to a regular bank account. Once a customer finishes their purchase, the payment will not immediately be transferred to your bank account, in fact first they will be captured by the an account which is called a merchant account