What Is A Payment Gateway? The First Lines Of Defence In The Fight Against Fraud

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A POS system is what allows you to capture payment data at the checkout counter when accepting credit and debit cards in your physical store. However, in the eCommerce world, merchants rely on payment gateways to securely accept online payments.

However, not all payment gateways are the same. It is critical that you understand the following before selecting a solution for your e-commerce store:

What Is a Payment Gateway?
How a Payment Gateway Works
Payment Gateway vs. Processor
Types of Online Checkout Options
Payment Gateway Limitations

Consider an online payment gateway to be the online equivalent of a credit or debit card reader. Both collect payment data before encrypting it and sending it to a payment processor for authorization.

The primary distinction is that e-commerce merchants who use payment gateways:

They should never have direct access to the credit cards of their customers.
Customers are rarely (if ever) met face to face.

This is one of the benefits of selling online. You can connect with users all over the world and generate sales around the ...
... clock.
However, selling to distant, anonymous buyers entails a slew of security risks. Criminals, for example, can easily intercept credit card information transmitted between your online store and your payment provider.

Payment gateways are one of the first lines of defence in the fight against fraud. They assist in keeping sensitive payment information out of the hands of criminals — but how?

How a payment gateway works
Step 1: Credit card information is swiped, dipped, or typed in manually.
Step 2: The payment gateway encrypts and sends cardholder data to the payment processor.
Step 3: The payment processor alerts the card-issuing bank, and the transaction is either approved or rejected.
Step 4: The payment processor informs the payment gateway of the authorization or decline.
Step 5: The transaction originator is notified by the gateway. If the transaction is approved, funds are deducted from the customer's account and deposited into the merchant's bank account.

When a customer is ready to check out from your online store, he or she enters his or her payment information before clicking the "Buy" button.
Your payment gateway is a literal "gateway" through which the credit card data of that customer must pass. However, before the customer's payment information is sent to your processor, it is encrypted using a variety of security protocols, including:

Transport Layer Security (TLS)
Secure Sockets Layer (SSL)

These encrypted details are received by your payment processor before being sent to the customer's bank for approval. The secure payment processing network returns an approval to the best online payment gateway once the transaction has been verified.

Congratulations! You've just made another sale. The entire process took only seconds after your customer clicked the "Buy" button.

The difference between a payment gateway and a payment processor
Payment processors (also known as payment providers) are in charge of many aspects of secure credit card processing, such as data security, user authentication, and fund settlement. They may also provide credit card machines and other payment processing equipment. Payment processors also serve as intermediaries by transmitting transaction data between your company and your customers' credit card providers (i.e., issuing banks).

To accept credit cards, you'll need a merchant account, whether you sell primarily online or through a physical store. Consider these to be specialised bank accounts that can accept electronic payments.

However, if you're a brick-and-mortar merchant, you'll need a credit card terminal or virtual terminal to swipe or dip your customers' plastic at the checkout counter.

If you run an online store, you'll need a payment gateway linked to your online checkout form or shopping cart.

The difference between an online payment gateway India and a payment processor is that in the e-commerce world, a payment gateway is what captures and encrypts your customers' credit card data.

Online checkout payment options
There are several methods for accepting online payments with a payment gateway.

1. Simple checkout (aka redirects)
When a customer is ready to purchase, they are temporarily redirected off-site to enter their payment information and confirm their purchase. When the transaction is completed, those users are automatically redirected to your website.
This is the simplest type of checkout experience to implement for many e-commerce merchants. You don't have to be concerned about payment security because no credit card data is ever captured on your server.
The downside is that the Simple Checkout strategy interrupts the user experience, since you are redirecting customers off-site.

2. On-site checkout and payment
When a customer is ready to buy, they enter their payment information and confirm their purchase on your website.
The disadvantage is that because everything happens on your servers, you are responsible for all of your customers' sensitive information. This puts your website and servers under PCI scrutiny, which is costly and requires technical expertise to set up properly.

3. On-site checkout, off-site payments
Customers who are ready to purchase are temporarily redirected off-site to complete the transaction. The site to which they are redirected, on the other hand, looks exactly like your e-commerce store. Customers enter their information on a hosted payment page, which means the checkout form is hosted on another site. By removing this process from your systems and servers, you reduce your PCI scope and reduce the likelihood of a data breach.

Users are automatically returned to your site once the transaction is completed. Again, users are unaware of this. They never left your e-commerce store, in their opinion.

When properly configured, the On-Site Checkout, Off-Site Payments approach provides the best of both worlds. A seamless shopping experience benefits your customers. In fact, you can incorporate your online store's branding, logo, and colour scheme into your hosted payment page.

Limitations of gateway merchant services
Payment gateways are required for online credit card acceptance, but they are not without limitations. Some of the issues that e-commerce merchants face when using payment gateways for their online stores are as follows:
Payment gateways do not accept all credit card types. The same can be said for POS terminals. Payment gateways, on the other hand, can easily expand their functionality through simple software upgrades.

International transactions can be difficult for payment gateways at times. This is due to the fact that each country has slightly different authentication protocols and currency restrictions.

Payment gateways do not always play well with other software. If you've already invested heavily in accounting apps, shopping carts, or customer relationship management (CRM) suites that aren't compatible with your chosen payment gateway, this can be a significant challenge.

Payment gateways, like all digital tools, are vulnerable to malware and viruses. Although software patches can address many of these issues, your payment environment may still be vulnerable if you store credit card information locally.