E-Commerce Insight 101 - What is a Payment Gateway and How Does It Work

The spectrum of business has changed exponentially ever since the rapid growth in Information Technology. From the development of a product, marketing & selling, and communication channels all have modified since the markets have gone online. 

In addition to the online presence of businesses, online financial transactions have become a reality because of a revolutionized technique known as the Payment Gateway System.

You must be wondering what this technique is, how it works, and how you can choose the Best Payment Gateway that will align with your business needs.

What is a Payment Gateway? 

A Payment Gateway is a revolution in the Payments Ecosystem that facilitates online transactions between a business and its customer. If you are an E-commerce merchant, it’s important to understand how Payment Gateway directs payments to your Bank account.

It is an online payment service that is integrated with an e-commerce platform. This service captures and transfers payment data to the acquirer from the customer and then transfers the status of acceptance and decline of that transaction back to the customer. The E-Commerce Payment System for your business carefully encrypts the sensitive details of the payment mode used by the customer, ensuring that the information is passed securely from the customer to the acquiring bank account via the merchant. 

Now that you've understood what Payment Gateway actually is, let's take a step further and understand the working of the Best Payment Gateways.

1. The customer is directed to your business website, where he/she gets to select the desired product or service and once the selection is made, the customer is directed to the payments page, where the Payment Gateway plays a major role. 

2. The customer is instructed to enter his/her card details, like the card bearer's name, expiration date, and CVV number (Card Verification Value). This information is then securely automated to your Payment Gateway based on your integration. 

3. An integrated Payment Gateway encrypts the card details and executes all the necessary checks before sending the card data to the acquirer’s bank. 

4. The acquirer’s bank sends the required information to the schemes (Visa, MasterCard, etc.) securely. 

5. The Card schemes perform additional levels of checks and send the payment data to the issuing bank. 

6. The Issuing Bank, after performing all the necessary operations, authorizes the transaction. Whether the payment is approved or declined is transferred back from the card schemes to the acquirer through a message.

7. The acquiring bank then transmits the message to the merchant. If the payment is approved, the acquirer may collect the amount from the issuing bank and hold the fund in your merchant account. 

8. Based on the message, if the payment is declined, the merchant may ask his/her customer to initiate the whole payment process again using another feasible payment method. 

Moving ahead, here are the key aspects to consider the Best Payment Gateway for your E-Commerce business: 

1. Target Audience

It is important to consider the demographics and geography of your target customer base. This will enable you to understand their preferred payment methods. For Instance, an older age group would prefer paying through Debit/Credit cards, but on the other hand, millennials and Gen Z would prefer to use Paytm, Google Pay or more. Therefore, it is important to analyze the location feasibility and preferences of your clientele. 

2. Multi-currencies Support 

The demographics of an online business are spread all across the globe. It is significant that your payment Gateway should have multi-currency options to make shopping seamless for international shoppers. It allows business owners to charge clients in their native currencies.

3. Security Needs 

It is advisable to choose a hosted solution to keep the security of payments a priority. Your customer-sensitive payment details are important to be secured to maintain the trust and loyalty of your customers. If you are planning to market your business offerings internationally, check your payment provider with GDPR compliance. 

4. Performance of the Payment Gateway

It is advisable to consider processing speed because it is very important that your checkout user experience must be seamless. 

Another significant factor is the success/decline rate of the payment made by your customer, so it becomes necessary to analyze every aspect while availing of the Payment Gateway option for your business. 

Our blog helps you make a conscious decision about the Best Payment Gateway system that aligns with all your business key objectives and is focused on your customer satisfaction.