Everything You Need To Know About Payment Gateways

What is a payment gateway?

A payment gateway is a merchant service front end application that authorizes a credit card, debit card or direct payments. It is provided by the banks or by individual financial service providers. A payment gateway facilitates the exchange of customer information with the acquiring bank.

How does it work?

The functioning of a payment gateway varies for online merchants and brick and mortar businesses. However, the basic steps of operation remain the same.

Typical steps in a transaction through a payment gateway:

  • The customer submits payment details like credit card numbers to the merchant website.
  • The browser encrypts these details and sends them to the web server of the merchant. The encryption is usually the Secure Socket Layer (SSL) encryption protocol.
  • The servers of the merchant then send the entered details to the servers of the payment gateway. In some cases, the customer details are directly sent to the payment gateway, bypassing the merchant systems.
  • The payment gateway then converts the encrypted details into a format that is understood by EFT switches. These details can now be accessed by the processors in the acquiring bank.
  • The payment processors of the bank then forward the details to the card association viz. MasterCard, Visa, American Express etc. for verification. These card associations authorize the payments. They are responsible for sending approval or denial messages to the consumer. This message is sent to the payment processors of the acquiring bank.
  • The acquiring bank servers forward this message from the card association to the payment gateway. It is then conveyed to the customer through the interface being used.

This complete procedure is known as the authorization process. The payment gateways carry out the authorization process within 2 to 3 seconds.

Pros of payment gateways :

Security

The payment gateways today are programmed to provide maximum security to online transactions. Tools like OFAC list checks, blacklist checks, geolocators, computer fingerprinting and AVS checks are in place to keep checks on online payment frauds. It gives a measure of protection to both the merchant and the customers.

Ease of use

Using payment gateways can be done by anyone who has a basic knowledge of computers. It does not need any specialized training.

Easy to deploy

Merchants find it easy to deploy payment gateways. They can avail of the services immediately after deployment. There is no need to wait for lengthy setup procedures.

The wide array of features

Nearly all payment gateways today have a vast number of customizable features. They provide security tools, payment features for ease of payments, etc. They are customizable and provide the best possible user experience.

Cons of payment gateways :

Sensitivity of information

Customers share extremely sensitive details such as credit card numbers, addresses and OTPs with the payment gateway. These details in the wrong hands could cause huge damages. Payment gateways are always threatened by hackers and other cybercriminals. In spite of protection measures, there is always a chance that data security may be compromised.

Troubleshooting losses

As with any software payment gateways face glitches. Troubleshooting these glitches can take up to several weeks. The effects of such malfunctions have hugely detrimental effects on the business. No transactions are possible without payment gateways. This means that the merchant has to bear losses until the payment gateway is working again.

Lack of customer comfort

Despite security measures, customers do not trust web-based payment services. They do not feel safe disclosing private information to gateway servers that may be subject to data leaks. This may cause some losses to the merchant.

Advancement in the technology will certainly make payment gateways a milestone in the electronic transfer.

Vikram Shinde

Vikram is the founder of TopOnlineTool. He is a business man by day and writer by night. He has years of experience in business, technology, finance and marketing field. He loves to share business & finance ideas through his collaboration.

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