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A Guide to Payment Gateways

Payments | 6 mins read

The recent growth of online payments is a testament to how crucial payment gateways are for your business.

Payment gateways are services that process your business’ card transactions. They’re an asset to your business because they ensure safe and smooth transactions, and reduce losses associated with late payments.

PAYMENT GATEWAYS

This article will walk you through what a payment gateway is, why they’re popular, how online payments work with them, and the different ways you can integrate with a payment gateway. For more about choosing the right payment gateway, click here.

What is a payment gateway?

In simple terms, a payment gateway is a network through which your customers transfer funds to you. Payment gateways are very similar to the point-of-sale terminals used at most brick and mortar stores. When using a payment gateway, customers and businesses need to work together to make a transaction.

Once your customer has placed an order, the payment gateway verifies the customer’s card details and checks if they have enough funds in their account to pay you.

How can a payment gateway benefit my business?

Convenience

When you integrate with a payment gateway, it means that your customers can make purchases at any time, whether you’re minding the store or not. Allowing your customers to shop at their leisure adds convenience for them and for you.

Faster payments

As a business owner, you know that it is hard to get paid at all. Instead of having the hassle of agreeing to pay on a certain day and then forgetting to do so, many customers prefer to just pay instantly and get it over with. Payment gateways allow them to do just that, making it a win-win situation for both you and your customers.

Better security

Customers’ number one concern with online payments is security. As of 2017, loss resulting from credit card fraud in the United States amounted to 2.5 billion dollars.

Using payment gateways severely reduces the risk of credit card fraud for three main reasons:

How do online payments work with a payment gateway?

Before we get into the actual process, here are some terms you’ll want to understand:

Merchant Account

A merchant account is a separate bank account that businesses use for their receivables. During a transaction, your customer’s payment is initially transferred to your merchant account, where it stays until you move it to your business’ regular bank account. You need both a payment gateway and a merchant account to accept online payments.

Payment Processor

When a business charges a customer for a purchase, a payment processor is the service that authorizes the customer’s card details to make sure that they have enough funds in their account to pay. If they do, then the payment processor authorizes the transaction and the payment is sent to the business’ account, and if not, the transaction is rejected.

The steps below explain how online payments work with a payment gateway:

Step 1

When accepting online payments, start by setting up your website and connecting it to a payment gateway.

Step 2

Your customer makes a purchase from your website by clicking your payment link and entering their credit card or debit card details.

Step 3

The order and card details are sent to the payment gateway. The card information is securely transmitted to the payment gateway, so that only your customer and their bank will be able to access their card details.

Step 4

Next, the payment gateway verifies your customer’s card details and checks if they have sufficient funds to make the payment. If they do, then the payment gateway proceeds with the transaction. Additionally, the payment gateway prevents fraudulent activities with the help of anti-fraud tools.

Step 5

The payment gateway then takes over and sends a request to the customer’s issuing bank to initiate the transaction. The issuing bank then sends these funds to the merchant bank who then deposits them into the merchant account.

Step 6

The status of the transaction will be sent as a notification to the merchant. The payment gateway that you are using determines how long it takes to receive your payment. Most payments are received in real time, almost immediately after the transaction is complete, but some may take as long as 21 days if there are any errors in processing.

How do I integrate with a payment gateway?

You have a few options for how to integrate with a payment gateway, depending on how you’d like to receive payments from your customers.

Overall, payment gateways simplify the online payment process for your business and help you receive payments faster, more conveniently, and with better security. If you are considering receiving online payments, or want to enhance the method you are already using, then a payment gateway is what you’re looking for.

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