What Is A Payment Gateway And What Function Does It Serve In Online Commerce?

There is no getting around the need for a payment gateway if you operate an e-commerce website. If you’re new to the world of payments, this could seem incredibly difficult and beyond your capabilities.(ecommerce payment solution)

In actuality, payment gateways aren’t as as complicated as you may have first thought.

Here’s a closer look at payment gateways to explain what they are and why eCommerce companies need them. Additionally, you will learn how to immediately begin using your payment gateways.

A Payment Gateway: What Is It?(ecommerce payment solution)

In a prior Due piece, Will Lipovsky explains that “a payment gateway is the service that transfers all of your credit card transactions to your credit card processors.” Additionally, it notifies you via a message from your credit card processor when a transaction has been approved. Even some payment gateways will add tax and check for fraud automatically.

In other words, a payment gateway is just a piece of software. The bank that authorises (or rejects) a customer’s credit card payment essentially acts as a conduit between an eCommerce website and the bank.

Payment gateways handle the processing of credit and debit cards, eChecks (ACH), and even virtual currencies like bitcoin.

The last stage of the purchasing procedure on an e-commerce website is a payment gateway. You won’t be able to securely bill your clients for the goods they buy from your website without it.

What Function Does a Payment Gateway Serve?(ecommerce payment solution)

All online credit card processing requires payment gateway services. When you pay for your lunch at a restaurant, a point of service (POS) gadget performs the exact same procedure.

When you buy things from a physical store, the payment gateways are used. Therefore, a payment gateway’s primary function is to approve transactions between you and your clients.

Keep in mind that without the approval of a payment gateway, the transaction procedure cannot continue and you will not receive your money.

Is a Payment Gateway Necessary?(ecommerce payment solution)

The answer is unquestionably yes if you operate a website that is exclusively for online shopping, which means that you accept payments there. Without a payment gateway, there is no other method to accept credit cards over the internet.

Considering that transactions are handled through a payment gateway, keep in mind that they are handled as “card-not-present” transactions. This indicates that the merchant is solely reliant on the data that the customer enters regarding their credit card. The customer’s credit card is not truly visible to the merchant.

There is no method to execute the data on the card’s magstripe or EMV chip during the card-not-present transaction. As a result, there is a chance that there will be more fraud. You might pay a higher rate than for card-present transactions as a result.

The Function of Payment Gateways

A payment gateway appears easy to use and uncomplicated to the customer. You go to an e-commerce website, choose the things you want, put them in your basket, and pay.

You confirm your order after entering your payment details. You can now take it easy till your stuff shows up at your home. But in reality, things are a little more complicated.

These six steps comprise the gateway procedure.

The first step involves the customer placing an order and providing their payment details. A “card-not-present” transaction will be processed for an online transaction. Once more, this might lead to a faster processing rate. Once submitted, this information is encrypted before being transferred.

Step 2: The merchant’s processor, or simply the business that actually performs the transaction, is the recipient of the encrypted data first.

Step 3: The processor sends the credit card association the transaction details. Credit card associations include American Express, MasterCard, Visa, and Discover. For each transaction, these card associations impose an interchange fee.

Step 4: The transaction will either be allowed or rejected at this stage. It goes without saying that the card must be active and fundable.

The authorised user must also be free of any holds or freezes in the fourth stage for the transaction to be approved. Amazingly, the first four steps are completed in just a few seconds!

The transaction is authorised in Step 5. The parties involved in the payment processing network are then informed of the authorization by the issuing bank.

The credit card association initiates the authorization process, followed by the merchant’s company. Finally, use the payment gateway to return to the online store.

Step 6: Despite the fact that the transaction only takes a few seconds, it may take up to 48 hours for the money to appear in your account.

Putting a Payment Gateway in Place

Prior to setting up a payment gateway, you must legally establish your firm. You should get an EIN, often known as a tax identification number. You’ll create a working website, register a company bank account, and buy a domain name.

Then decide on a third-party processor so you may accept payments online, like Due or PayPal.

Find out if your bank is a merchant facility if you have a merchant account open. This will make it possible for a payment gateway to easily link to your bank account. The money from the purchases made through your website is then put into your account.

In order for them to help you set up your account properly, you should also get in touch with the company that provides your payment gateway. They will assist you by connecting your bank accounts to their software and you how to use it.

You can incorporate the payment gateway into your e-commerce website once these procedures are finished. This procedure might require some technological expertise. Hire or contract a skilled developer to ensure the payment gateway is operating securely and correctly.

What’s the distinction between a payment processor, a payment gateway, and a merchant account?

You’ve certainly heard people talk about payment gateways, payment processors, and merchant accounts if you’re new to online payments. Let’s delve a little deeper because it can become a little tricky.

The intermediary between eCommerce websites and the payment processor is a payment gateway. Your eCommerce websites’ payments are safely authorised by this system.

Processor of payments

A merchant often appoints a third-party business, known as a payment processor, to handle payment transactions. The processor sends data between you in order to complete the transaction.

There is your bank and the bank that issued the customer’s credit card. To accept credit card payments in person, a payment processor also offers credit card machines.

According to Due, “It’s a quick and inexpensive way to collect payments rather than setting up your own merchant account.” You may start processing payments right away if you just sign up with a third-party payment processor.

Sometimes payment processors aren’t the most secure, in which case the per-transaction percentage cost is your responsibility. Verify these costs because they can wind up being more expensive than a separate merchant account.

Numerous online services provide both features, despite the modest differences between payment gateways and payment processors.

Accounts of merchants

You can accept a variety of payment methods with merchant accounts, which are unique bank accounts. Credit cards, debit cards, and ACH payments are all accepted as forms of payment.

Additionally, you can deposit money and subtract processing costs using a merchant account. A merchant account is really just an agreement between a retailer and a credit card processing business. You have access to quick, adaptable, and secure payment methods thanks to them.

To accept credit cards online if you work in eCommerce, you’ll need both a merchant account and a payment gateway.

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