What is a payment gateway & how do I choose the right one?
A payment gateway is like an online cash register that helps businesses accept credit cards, debit cards, and other forms of digital payment methods.
Whether you sell in-store and online, or exclusively online — a payment gateway facilitates secure payments for both scenarios. This article explores the payment gateway essentials; what it is, how it works, why you need it, and some tips on choosing the right one for your business.
Definition: What is a payment gateway?
A payment gateway is an electronic payment processing service for merchants that processes transactions online and in-store. Leading payment gateways also do the following:
- Encrypt data between the customer’s browser and your server
- Send requests to credit card providers and financial institutions to authorise payments
- Enable ecommerce checkouts to proceed to the next step
- Screen orders to detect fraud and other malicious behaviour
- Use geolocation services to execute location-based actions
Pro tip: Payment processors and payment gateways are two terms often used interchangeably. This isn’t entirely accurate – and here’s why:
- Payment processors transmit payment data, e.g., sending credit card numbers to an issuing bank.
- Payment gateways do the above, plus authorise the fund transfer between the customer and merchant.
Process: How does a payment gateway work?
Before we tell the story, let’s meet the characters. The key players in electronic payments are as follows:
- Customer – the person buying your product or service
- Merchant – the person (you) or business that sells products or services
- Issuing bank – the bank that issued the customer’s credit or debit card
- Acquirer – where the transferred funds will end up, usually the merchant’s (your) bank
Now, let’s say a customer purchases from your ecommerce site. Your payment gateway then works through the following steps:
- Sends the transaction details to the acquirer;
- Identifies the customer’s card network (for example, MasterCard);
- Transmits the payment information to the correct issuing bank.
Then, the issuing bank steps in and:
- Verifies the legitimacy of the transaction;
- Determines if the customer has enough money to make the purchase;
- Approves or denies the transaction and transmits this information through the card network and on to your payment gateway.
Finally, your payment gateway authorises the fund transfer.
Benefits: Why does my business need a payment gateway?
The right payment gateway can enhance the overall performance of your business – but let’s get specific.
Firstly, businesses that deliver superior customer experience outperform competitors by almost 80%. A payment gateway makes your customers’ checkout experience fuss-free, encouraging repeat purchases and raising your bottom line.
Secondly, more than half of shoppers will abandon their cart if the checkout process is slow or complicated, and 80% of these shoppers won’t return. A payment gateway supports impulse purchases by streamlining the payment process and allowing super-speedy checkouts.
Lastly, the Australian Cyber Security Centre responds to one threat every 10 minutes. A payment gateway with in-built security defences is one of the most powerful tools in your cybercrime-fighting arsenal.
Improving payment security isn’t just about protecting your business’ and customer’s data – it’s about meeting your compliance obligations (including the Payment Card Industry Data Security Standards or PCI-DSS requirements) and giving shoppers peace of mind. According to Experian’s 2021 Global Insights Report, 55% of consumers believe security is the most critical factor in their digital experience.
Read more: How to keep your customers’ information secure when taking payments online
Payments aren’t as simple as they used to be, and your business must adapt. A payment gateway can support the following:
- Integration with your ecommerce platform
- A broad spectrum of payment types (Visa, Mastercard, Amex, etc.)
- Subscriptions and recurring payments
Challenge: How do I choose the right payment gateway?
Not all payment gateways are created equally. If you want to provide the best possible customer experience, meet your compliance obligations, and protect your business against the rising threat of cybercrime, you need to do your homework.
Big picture, there are four key factors you should consider before deciding:
- Your budget. The payments industry is always changing, and it pays to shop around. You might just find a platform with a better offer or lower fees.
- Your plans for growth. The ecommerce space is evolving rapidly, and chances are, your business has experienced growth that your payments platform wasn’t able to keep up with. Consider where you are today, and where you want to be in one, two, and five years into the future.
- The integrations that will empower your business. There is no one-size-fits-all solution to payments and selecting the right option for your business means factoring in the types of functionalities you need. Think web design, integrated shopping carts, and accounting software.
- The support you need. When an issue arises, you need it resolved fast. Your revenue and reputation depend on it. Pay close attention to the quality of customer support you experience from day one, as this is often a realistic indication of the level of attention you can expect long term.
Read more: Is your payment provider keeping up with your business?
This article has been republished with permission from eWAY. eWAY offers an easy to use payment gateway, or a complete all-in-one payments solution.
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