If you start a dropshipping business and open an ecommerce store, then you’re going to need a payment gateway. Payment gateways play an important role in the online payment processing system. And if you use the wrong gateway to accept payments from your customers, you will make your entire payment process on a downward spiral. Without a payment gateway, you won’t be able to securely charge your customers. And a payment gateway can also provide you with security, reliability, dependability. The article will introduce everything about payment gateway, including what is a payment gateway, how do payment gateways work, its features, limitations and types, top payment gateways, as well as how to pick the right payment gateway.
What Is A Payment Gateway
A payment gateway is a merchant service provided by an e-commerce application service provider. It can not only be provided by banks to their customers but also can be provided by specialized financial service providers as separate services, such as payment service providers. Payment gateway is similar to a POS terminal found in many retail establishments. Besides, it authorizes electronic credit card and Automated Clearing House (ACH) payments to provide seamless payment processing for businesses. Furthermore, it facilitates payment transactions through the transmission of information between a payment portal, such as a mobile phone, a website, or interactive voice response service, and a front-end processor or receiving bank. Payment gateways encrypt and store sensitive data to ensure that confidential information is safe when processing payments.
And there are three main elements of a payment processing system, including Payment Gateways, Payment Processors and Merchant Accounts. What are the key differences between them? There is a summary:
1. Payment gateway
Connects your eCommerce store to the payment processor and sends a transaction request to the payment processor.
2. Payment processor
Processes the request from the gateway and executes it. Take the money from the customer and deposit it in your merchant account or an account managed by a third-party.
3. Merchant account
It is where the funds get deposited after a successful transaction. There is no doubt that it is optional and you don’t need to have one as an eCommerce business.
How Do Payment Gateways Work
The payment gateway process follows six steps which take only a couple seconds.
2. Payment gateway sent encrypted information to the payment processor, which actually processes the transaction.
3. Processor routes the transaction data to the credit card association.
4. The Processor sends an “approved” or “declined” response back to the payment gateway.
5. Transaction becomes authorized and the issuing bank then transmits the authorization back to the parties in the payment processing system.
6. Take between 24 to 48 hours for the funds to be available in your account.
Payment Gateway Features
In addition to processing online payments, payment gateways also have other features:
1. Payment Information Storage
Payment gateways can store the encrypted payment information securely. Thus the customers don’t need to constantly rewrite their information.
All payment gateways encrypt sensitive payment information before they transmit it to the processing bank.
3. Virtual Terminal
A virtual terminal is a browser-based version of a physical credit card terminal which allows you to input a customer’s credit card information. It can process the transaction directly through your computer’s web browser, even use a mobile device through an online web form. Processing rates will always drop when the card is present.
Payment gateways can integrate with other tools, such as accounting software like Quickbooks, shopping platforms like Shopify.
5. Recurring Billing
Subscription-based pricing is becoming popular payment gateway increasingly. The subscription provides a recurring billing feature that you can automate this process.
6. API Tools and Developer Information
Most payment gateways give you the chance to customize it to fit your specific needs on the technical side.
7. PCI Compliance
Payment gateways are PCI compliant so that you can accept payments securely and avoid costly fines.
Limitations of Payment Gateways
1. Gateways rarely accept all types of cards or payments
Many payment gateway providers like to advertise the universality of their gateways. However, the truth is that gateways rarely accept all types of cards or payments. And they won’t highlight when they can’t accept payments from specific card issuers and processing portals.
2. Gateways may be not optional for international customers
Different countries may have different popular payment gateways. If you look to capture broad international customers, you need to make sure your payment gateway can handle it.
3. Security flaws
A high-quality payment gateway is secure generally. However, there are some security vulnerabilities that you need to keep in mind.
TLS encryption helps most payment gateways process privileged data, such as card information. But once the data is on the server, the server remains a risk.
Mobile payment issues
You may control most of the security in a transaction, but you still can’t control who has access to a customer’s mobile device.
It reads passwords and infiltrates user accounts. And it can still send apparently real transactions through secure payment gateways, even if the transactions themselves are fraudulent.
3 Types of Payment Gateways
When the gateway takes a customer to a PayPal or other payment page to handle the complete transaction, it becomes a “Redirect”. It is simple for the retailer. A small business can use a redirect-gateway to incorporate the convenience and security of a major platform such as PayPal. However, the process also means less control for the merchant.
2. Checkout on site, payment off-site
Likes Stripe’s payment gateway, the front-end checkout will happen on your site. And the payment processing occurs through Stripe’s back end. It also has advantage of simplicity. However, you can’t control the user’s entire experience through the payment gateway which will make you at the mercy of the quality of the offsite gateway and its quirks
3. On-site payments
On-site payments make the checkout and payment processing on behalf of the customer all work through your system. Large-scale businesses tend to use it and will have more control and more responsibility. When you handle your payments on-site, it’s necessary that you understand your options and responsibilities.
5 Top Payment Gateways
There are the top 5 payment gateways in the market: