Payment Gateway: Ultimate Guide To Understand Definition, Process & More

With the onset of summer many families go for a holiday to local as well as international locations. These days people prefer booking the hotels and tickets etc. online. It is because they know doing it online is fast and convenient than the traditional ways. What they don’t realize is they have used a payment gateway while reserving the air tickets or booking hotel rooms.

In fact, every single online purchase necessarily includes a payment gateway. A payment gateway’s role is to transfer cardholder data from a website to a payment network for the purpose of processing. It acts as an adhesive between the point of sale and payment network in card-not-present online transactions.

Merchants who accept online payments should already be familiar with the definition and steps involved in payment gateway process. It can however be a topic of curiosity for the budding businesses looking forward to accept online payments to know what payment gateway has to do with accepting online payments.

While most of the businesses know the importance of finding right merchant providers in running an online business, little is known about the significance of payment gateway process. It works in a subtle manner away from the limelight to ensure things are on the right track when customer makes request for card-not-present transaction.

How Does The Process Of Payment Gateway Work?

As explained earlier, a payment gateway is a bridge between a business’ shopping cart or website and the payment network. These are the software and servers that transfer transaction data in order to facilitate communication within the banks.

What happens in case of a card-not-present transaction after customer makes a purchase request is payment gateway establishes connection with the acquiring bank and issuing bank to confirm if sufficient funds are available or not in the card-holder’s account. According to the response received from issuing bank particular transaction is approved or declined.

Payment gateways follow the below given sequence of steps:

1. The process starts at the point where a customer initiates the purchase. In other words, as soon as a customer inputs the card details the information detail is encrypted and processed further.

2. This encrypted data makes its way to the merchant account service provider.

3. The provider directs the transaction to one of the appropriate Card Association like MasterCard, Visa and Amex. An interchange rate is assessed for a transaction; however, owing to the risk of fraud involved in card-not-present transactions; the interchange rate is set high.

4. Card-holder bank account is confirmed to have sufficient or insufficient funds on basis of which the transaction is either approved or denied.

5. Only when sufficient funds are found it leads to transaction authorization. Payment processing network is informed for the authorization and subsequently the Card association and merchant are also educated about the same.

6. It may seem a matter of seconds to complete these steps but the fact of the matter is that it takes 24 to 48 hours before the cardholder’s account is debited as it rests as pending till then.

After going through the aforementioned points, it can be realized that security holds utter importance. This is why a Payment Gateway undergoes this long list of steps.

Factors Affecting Choice Of Payment Gateway

Merchants often get overwhelmed in the process of selecting a payment gateway from the choices available to them. It is obvious that no two gateways are same. Nevertheless, there has to be a criterion to give more weightage to one gateway than others. Let us assess the key players which have a say in pickup of gateway for a business.

1. Money Matters

Most of the merchants take all their decisions with money at the heart of it. Though it is not bad but there is a serious need to complement it with value they get with their money. It is a no brainer that merchants have to pay gateway fee to use Payment Gateways services. However, merchants need to execute common sense by comparing the options they have got.

Experts recommend making use of payment gateway process coupled with another payment service. A merchant making smart move can buy a combined merchant service provider & payment gateway and avoid paying additional gateway fee. These kinds of associations are often win-win situation for both the merchants and the service providers.

2. Devoid Complexity

As suggested above, the integration of payment gateway with merchant’s payment processor costs can be cut down. Benefits of this kind of merging act extend up to avoiding any complexities. For a merchant it is best to go for the payment gateway that renders flexibility to integrate with multiple solutions. An integrated shopping cart which is easy to set up, flexible and easy to use which and provides dozens of gateway options is the best buy for any merchant.

3. Security Intact

It is essentially important for a business to process and transmit cardholder data. Every customer longs for secure card processing in absence of which a business’s success is in danger. Security breach can lead to loss of customers and business.

Ensuring the payment gateway provider is PCI compliant is something every merchant should be paying complete attention to. A merchant’s lookout should be perpetual PCI Level 1 Compliance by the gateway provider. Meeting the security standards over the years make merchants sure and secure about the payment gateway services they are buying.

Do you have any questions related to payment gateway process? Competent team of Paycron is all ears to your queries, concerns and doubts.