If you are planning to run an online business, whether it is e-commerce, retail or any type of activity that requires payment card processing, you will need to implement a payment gateway. But what exactly is a payment gateway and how does it work? In this article, we will explain the science behind this digital service.
What is a payment gateway?
A payment gateway is a software used to process payments after completing an online purchase, acting as an intermediator between the merchant’s website and the acquiring bank. In other words, it transfers the information of your purchase from the merchant to the bank, authorizing the credit card and facilitating the payment transaction.
Every time you complete the checkout form of an ecommerce website, providing your credit card details for the purchase, a gateway processes this information and transfers it to the acquiring bank. Additionally, through the use of encryption and tokenization for credit card data protection, it ensures a secure exchange of information between the customers, the merchant, the payment networks, the acquirer and issuer banks and the card brand companies.
Payment gateways act as intermediators similar to the way POS systems do it in physical establishments. They authorize and approve digital transaction processes that allow the purchase to move forward, making it possible to safely pay online. Without a payment gateway, an e-commerce would not be able to accept credit cards for digital purchases.
How do payment gateways work?
Once you’ve filled your shopping cart with the products that you want to purchase, you arrive at the checkout, which is where the payment process starts.
Step 1: At the checkout, merchant use payment gateways, for example MYMOID, to create a new payment order in the system. Then, it returns a paylink or payment form where you can fill in your credit card information. Once the payment form has been completed, the gateway encrypts and storage this information under the strict security measures PCI-DSS, and sends it to merchant‘s acquiring entity/bank.
Because the data will be send to various participants in the network, its protection is extremely important. For that reason, always make sure to trust only companies that are compliant with PCI-DSS.You can read more on that here.
Step 2: The encrypted information arrives at the payment network, where it is handled by the acquiring bank or entity and sent to the processing center.
Step 3: At this point, the processing center checks the payment with the corresponding credit card issuer entity confirm that everything is in order, and provides a response to the payment gateway for approval or decline of the transaction.
Step 4: Once the transaction has been approved by the credit card issuing entity, the response is sent to the payment gateway, which sends it back to the e-commerce website, informing the customer that his payment has been successfully completed (or not, depending on the case).
Amazingly, this entire process takes only a few seconds!
Do payment gateways only serve for accepting payments?
Besides its main function for authorizing transactions, a payment gateway actually offers a variety of additional features for optimum functionality and user experience.
Of course, gateways may differ in features depending on the third-party company that provides them, but you here are some of the following:
- Virtual POS – a cloud-based service that processes credit card transactions without direct input of data by the customer; it acts in the same way as a physical POS at any store or retail, but without the need for additional hardware or software.
- PCI-DSS Compliance – since all companies that handle and process credit card data are obligated to meet the security standards established by Visa, MasterCard, Discover, American Express and JCB, always make sure that the selected gateway is PCI Compliant.
- API-Rest – if you are going to use a third-party payment gateway, choosing one that provides API tools for developers will make the integration significantly easier and more customizable to your needs.
- White-Label Wallet – some gateways allow you to implement digital wallet services for processing mobile payments, which comes in quite handy for improving customer experience and managing all operations in one place.
- PCI-DSS Vault – gateways usually allow you to securely store your information for recurring payments, avoiding the need to re-enter it each time you want to make a purchase.
Who needs a payment gateway?
Generally, every company that needs to accept credit cards and process payments online needs one. E-commerce, online retail, booking engines, managers, hotels that allow online reservations, travel agencies and microcredit companies are only a few examples of online businesses that need a payment gateway.
Due to the complexity and high costs of developing their own payment gateway, many companies choose to work with a third-party solution for authorizing transactions. When selecting one for your business, always keep in mind the security measures adopted by the company that provides it, and check out the additional features it offers. After all, providing a great payment experience to your customers is really important for their satisfaction with your brand – did you know that on average, 69% of online shoppers abandon their shopping cart and never complete the purchase?
If you are looking for a digital payment gateway for your business, MYMOID offers an innovative and fully functional set of payment solutions in compliance with the security standards PCI-DSS. Let´s payments move forward!