A payment gateway is a technology that merchants use to accept debit or credit card purchases from their customers. The term includes physical card readers in stationery stores as well as payment processing portals in online shops. However, in recent years, brick-and-mortar payment gateways have started accepting phone-based payments using QR codes or Near Field Communication (NFC) technology.
How do payment gateways work?
A payment gateway is a key component of an electronic payment processing system, the front-end technology that transmits customer information to the merchant’s acquiring bank where the transaction is processed. In other words,
Payment gateways are software and servers that transmit transaction information to acquiring banks and responses from issuing banks (such as whether a transaction is approved or declined).
Payment gateway technology is constantly evolving to reflect new consumer preferences and technological capabilities. Previously, terminals accepted credit cards with magnetic strips and required a paper customer signature. As chip technology evolves, the signature stage may be phased out in favor of a personal identification number (PIN) entered directly into the payment gateway hardware.
Contactless purchases are now also available, with many customers using their mobile phones as a payment method instead of plastic credit cards. The payment gateway architecture differs depending on whether it is an in-store gateway or an online payment gateway. Online payment gateways require an application programming interface (API) that allows the website in question to communicate with the underlying payment processing network. In-store payment gateways use point-of-sale terminals that electronically connect to payment processing networks via phone lines or Internet connections.
Security is an integral component of all payment gateways; sensitive data such as credit card numbers need to be protected from any fraudulent activities. The card associations have created a set of rules and security standards that must be followed by anyone with access to card information, including gateways. This set of rules and security standards is called the Payment Card Industry Data Security Standard (PCI-DSS or PCI).
Submitting an order is completed using the HTTPS protocol, which securely communicates personal information through the parties involved in the transaction. Payment gateways usually charge those who use them a per-transaction fee.
The Payment Service Provider will, in this case, make the gateway functionality available for the merchant and its customers.
Main types of payment gateways
In general, there are three types of payment gateways:
Pay on the spot (on-site payments).
Larger companies tend to use on-premises payments, processed on their own servers, and the checkout experience and payment processing all go through the system.
Now the advantages are reversed and you have more control and responsibility.
When processing payments on-premises, all variables are taken into consideration, and an improved shopping experience can make a dramatic difference to your bottom line, especially for high-volume retailers.
Local cash register, external payment.
With this method, the front-end checkout happens on his website, but the payment processing happens on the gateway’s back end.
Similar to redirected payment gateways, this method can simplify the payment process while increasing backend security.
The downside, however, is that you don’t have control over the user experience across payment gateways. If you choose this route, make sure you trust the security of your payment gateway.
Redirects.
Redirects often include an alternative payment method option. B. Companies that authorize the use of PayPal. A redirect occurs when the gateway directs the customer to her PayPal payment page to process the entire transaction.
Small businesses can use Redirect Gateway to consolidate the convenience and security of a large platform. A redirect has the advantage of being simpler for the retailer, but less control for the retailer and a second step for the customer.
Here are some payment gateway examples:
PayPal, Square, Stripe, Apple Pay, Amazon Pay, and Adyen.