What is a payment gateway?

To sell on the internet, you will have to give customers facilities so that they can pay with the means that suit them best. For this, you will need to have a payment gateway. This is an important element because it is the last step in a buying or selling process.

La payment gateway is a service implemented in electronic stores, to facilitate customer payment. Depending on the payment gateway you use in your store, you will get a better or worse experience for your customers when it comes to payment.

In this article, I present everything you need to know about how payment gateways work. Let's go !!

🥀 What is a payment gateway?

Payment gateways are platforms that allow a monetary transaction between 2 people over the Internet. To work with them, you will only need an email to register and a bank account. The bank account allows you to withdraw your money. It generally works in Backoffice.

The advantage of payment gateways is that they simplify the entire payment process for the buyer and you.

The buyer will have several ways to pay for the purchase (cash, credit card, fees, deposit or bank transfer) and the payment gateway will notify you when you receive the money.

You should know that the payment gateway does not only apply to online businesses. It also applies to physical stores that use card payment options. Upayment gateway is usually offered to the customer via their payment bank, but can also be offered via a "third party" source called a payment service provider.

The payment gateway passes transaction information between payment portals such as a website or phone and the payment source (bank). But, how does a payment gateway work?

🥀 How a payment gateway works

A payment gateway has made commercial transactions on the internet more convenienteasy and practical. First, the customer places an order through a website, app, or through a point-of-sale system.

This system then immediately encrypts the information, then transfers it to the merchant's web server. Currently the process is carried out via a SSL (Secure Socket Layer) encryption.

Once the merchant receives the payment instruction, they then send it through their payment gateway. Once the data is recorded, the information would then be transferred to the merchant's bank, which will issue a payment request to the bank that initiated the original data (customer's bank).

When the data is validated and processed within seconds, the payment will be transferred to the merchant's account. In case of an error at any stage of the process, a corresponding message will be sent to customers and merchants about the problem.

Furthermore, after recording the relevant data, there may be special payment requests which still have a status “not compensated” and, as such, the merchant can submit a request for “Growth Hormone release“, which invites the bank to compensate it.

🥀 How to use a payment gateway

If you wish, you use a payment gateway on your site, it's simple. Do like me by following the following steps:

✔️ Step 1

Enter the gateway site of your choice and create an account. Go to PayPal for example to do this. Integrate the account with your online store by entering your gateway customer number in your cloud administrator. Of course, it all depends on the type of web content manager you use.

✔️ Etape 2

When a customer pays for an order, the gateway will send an email guaranteeing that the payment has been processed successfully. It is not advisable to send the order before having this confirmation.

The money collected will remain in a virtual account of the gateway you have chosen. You can transfer this money to your bank account from the gateway admin panel, or ask them to write you a check. In some cases, you will have to wait a few days before you can withdraw the money.

🥀 Types of payment gateways

Nowadays, transactions between businesses and customers have become easier and much more convenient with the implementation of payment gateways.

The days when businesses relied solely on direct bank transfers is over. There are currently four (4) types of payment gateways available, namely:

✔️ Hosted payment gateways

With hosted payment gateways, customers are redirected from the main page of the business website to the business payment page. Once on the payment page, the customer will be prompted to click on a link that will direct them to the Payment Service Provider (PSP) page.

On the PSP page, the customer will be prompted to enter their payment information and, in some cases, to log in if they have an account with the PSP. As soon as the payment request is validated, the customer will be redirected to the payment page to complete the process.

By far, Stripe is considered one of the most popular and trusted hosted payment gateways. Create a Stripe account is super easy.

Hosted payment gateways are the best known on the internet. But what are the pros and cons of using the hosted gateway option?

Hosted gateways provide a level of security to customers because they are PCI compliant and protect fraudulent activity. You can customize this payment gateway, and it is easy to use and configure, and the registration process is generally simple and hassle-free.

✔️ Self-hosted payment gateways

Self-hosted payment gateways are sort of fully controlled by the merchant. With this type customers are required to submit payment data via the company's website.

When the data is collected, it goes through an encryption phase because some of these gateways require the data to be sent in a particular format. A popular self-hosted payment gateway is used on Shopify, which is powered by Stripe.

All transactions are completed in one place. The merchant controls the entire payment process and it is customizable. However, there is no technical support system. If there is a problem, you will have to fix it yourself or hire a personal technician to do it for you. This last solution is unfortunately very expensive.

✔️ API payment gateways

The Application Programming Interface (API) allows customers to enter their payment details via credit or debit cards on the checkout page. Payments through these options are made through API processing.

An API is a messenger that takes requests and tells the system what you want to do, then sends the response back to you. A payment gateway API makes payment processing much easier for merchants.

It makes it easy to integrate the payment gateway with the website. Just enter two to three lines of code on your website. Anyone with a little technical knowledge can easily integrate a payment gateway into their website using an API.

As perks, it can be used on a variety of different platforms, including smartphones and tablets. It can be customized to provide customers with a better user interface (UI) and user experience (UX).

However, merchants are entirely responsible for creating secure options for their customers' financial information submitted through their sites.

✔️ Direct Payment Gateways / Local Bank Integration

This payment gateway option involves the integration of a customer's local bank in that upon opening a payment form, they are redirected to the bank's website.

Once on the site, they are asked to enter their contact details and details. When the payment is initiated, they will be redirected to the merchant's website. A confirmation notice will be sent once they return to the merchant's website.

As benefits, they are ideal for small businesses as well as businesses looking for a single payment system. However, they do not do not allow recurring payments. For this reason, they would not be ideal for large companies or wholesalers. This option only offers basic payment features and does not allow returns.

🥀 How to choose the right payment gateway?

When choosing a payment gateway, you need to consider certain factors. Here are some tips to keep in mind:

✔️ Check suitability with your products

Not all payment gateways work for all businesses, and as such, you should first research whether the appropriate gateway supports the products and services you offer.

Each payment gateway has a list of allowed and prohibited services that it does and does not support. Additionally, the payment gateway may prohibit certain services depending on the region you are located in.

For example, PayPal does not offer their services in some countries. It does not allow any form of transaction for goods and services in this region. It will surely be a waste of time to add it to your website only to find out later that it cannot be used.

✔️ Support for multiple currencies

This factor should be one of the most critical when looking for a payment gateway to add payment processing for your services, especially if you offer goods and services in various regions.

In most cases, customers avoid companies that do not have multiple currencies because the exchange rates can be raised. Having a multi-currency option will improve customer experience, expand your business and make payment easier for both customers and merchants.

Most of the time, three or four currencies would be fine, especially if they are widely used (USD, EURO, etc.).

✔️ Processing necessary payments

When choosing a gateway, you should pay attention to payment processing options. Especially when it comes to credit or debit cards and online banking. Customers want to be assured that the processing phase will be transparent and that they will not have any issues to resolve at the end of the day.

Additionally, even if you offer the option to pay via cards and bank accounts, are their systems in place to deal with possible delays?

✔️ PCI Compliant

Be PCI compliant is important when you want to choose an online payment gateway. You want to establish that level of trust with your customers to know that their data is safe with you and that no transaction will be completed without being initiated.

Credit cards are essential tools in an individual's life, so if the payment gateway you're looking at isn't compliant with the regulatory authority, you might want to opt out. Directives are security points by which gateways must agree to respect the protection of the card.

✔️ Prices and fees

You need to look at the gateway prices and fees. Many gateways charge a subscription system where you must make recurring payments for them to host and redirect your payment data.

As such, you want to review their prices and fees, as this will help determine changes to customers through these gateways (partially incorporated into the final customer charge).

✔️ Safety

Does the payment gateway you are using offer high security level for merchants and customers? Security is an important feature to evaluate in its entirety. Because customers' personal information will be added to your site and also sent through these gateways.

Will they be protected from potential hackers or those looking to breach your website's payment platform? One way to find out is to run relevant tests and evaluations with the gateway before launching it fully on your website.

✔️ Customer service

Seeing both merchant and customer information will be sent through these gateways. You want to use the services of one who has an effective and efficient customer support system.

In case of problems you must be able to contact the team to solve the problems. Also, choose a gateway whose customer service can provide quick responses to keep your trust concerns intact with your customers.

🥀 Popular payment gateway providers

There are many payment gateway providers available to facilitate business transactions.

✔️ Stripes

Stripe provides flexible tools that help improve payment processing for internet businesses. It offers recurring or subscription payment plans, crowdfunding platforms and other high-demand online sites.

Creating a Stripe account is easy and fast. Stripe doesn't charge setup or monthly fees and has no other hidden fees. However, if you use this payment gateway, 2,9% fee on top of $0,30 will be charged for each card payment successfully completed.

✔️ PayPal

Paypal is by far one of the most popular payment gateway providers. It's more accessible than most. There creating a PayPal account is easy and fast

With PayPal, online users can add their credit or debit cards and bank details to make online payments without merchants having direct contact with their funding sources.

Pricing and Setup Fees – Paypal does not charge fees to payments from buyers or those who create an account with them. However, merchants are charged 3,4% on top of $0,30 for card transactions. There are no monthly fees, gateway fees, or setup fees.

✔️ Authorize.net

Since 1996, Authorize.net provides payment gateway solutions to hundreds of thousands of online merchants around the world. Authorize.net accepts payment by credit cards and electronic checks (electronic check).

It is simple and straightforward to use. It is a great option for large e-commerce stores and service providers.

Pricing and Setup Fees – Unlike many other payment gateways, Authorize.net charges a setup fee of $49 with a recurring fee of $29 for monthly gateway fees.

✔️ Payoneer

Payoneer is a financial services company headquartered in New York City. The company was founded in 2005 and specializes in facilitating online payment transfers, both in the United States and internationally.

Payoneer has over four million users in over 200 countries worldwide and can process cross-border transactions in over 150 currencies.

Payments from a Payoneer account to others are free. This is a real advantage if your customers also use Payoneer. Payments made via local bank transfer incur a 0% fee if made in US dollars.

Transfers in euros or pounds sterling are free. Payments made by eCheck also incur 0% fee in US dollars. Payments made by credit card incur fixed processing fee of 3%.

🥀FAQs

✔️ What is a payment gateway?

A payment gateway is a secure service that facilitates financial transactions between sellers and buyers online. It processes payments by bank card, transfer, mobile wallet, etc. with complete reliability.

✔️ What is a payment gateway used for?

Payment gateways make it easy and quick to accept online payments without directly handling sensitive banking data. They also offer useful additional services such as currency conversion.

✔️ What are the advantages of a payment gateway?

The benefits are: secure transactions, automation of payment processes, multimodal payment acceptance, detailed reporting, currency conversion, conversion rate optimization, etc.

✔️ How to choose your payment gateway?

Consider reliability, security certifications, built-in features, supported payment methods, fee transparency, customer support, and integration with your website.

✔️ Are payment gateways complicated to set up?

No, many turnkey solutions exist and are easy to configure via online administration interfaces. Some are plug-and-play or offer APIs that are easy to technically integrate.

✔️ Does my e-commerce site need a payment gateway?

Yes, a payment gateway is now essential for any e-commerce site or online service platform that wants to accept transactions professionally.

🥀 Summary

In summary, a payment gateway is a secure online service that facilitates financial transactions between a seller and a buyer over the Internet.

Concretely, the payment gateway plays the role trusted intermediary by collecting sensitive banking data on behalf of the merchant. It also offers various convenient features like currency conversion, support for multiple payment methods and detailed reports.

By choosing a reliable solution with appropriate certifications, you can accept online payments by credit card but also by transfer, mobile wallet or other with complete peace of mind. Your activity is simplified and secure.

So if you are looking to start an online business or transition your physical store to digital, consider integrating a payment gateway. Today, it is an essential ally for an optimal payment experience.