If you are a travelling businessman, have plans to sell your products online or are simply a business which likes to use the latest technology, you’ll need access to payment gateway providers in order to securely take payments you might receive.
Learning about payment gateways is important for any business because there are plenty of ways in which a good and efficient payment gateway can help your business.
What is a payment gateway?
It’s a tool used to link the bank account or credit card provider of a customer to the bank account of the merchant, whether it is online, in-store or even in your home.
They provide a secure way for customers to transfer their card details and bank account information by encrypting any data passed from the cardholder to the server of the retailer, encrypting data for exclusive use between the buyer and seller.
A payment gateway is essentially the equivalent to the PDQ machines seen in your average high-street store that you put your credit and debit cards into. The payment gateway provides the merchant bank account with encrypted details about whether the cardholder’s bank account has enough funds (debit or credit) to settle that specific transaction.
Merchant account – What is it?
A merchant account refers to the specific type of bank account that businesses have which allows them to accept credit or debit card payments. They are temporary holding accounts used by a business for any funds which are making their way from the customer to that business.
A payment gateway is not holding accounts, and in order to take payments online or in-store, you must have both a payment gateway and a merchant account.
How does the payment service provider work?
A payment service provider (PSP) is a third-party hired by a business which can provide them with a variety of services which allow them to take debit or credit card payments. A PSP will collate all of the potential services a business may need, including a payment gateway and a merchant account.
The collated service is an efficient way to slimline the process for a business accepts payment, with payments being transferred to the PSP, which holds the merchant account details for the business before the funds then make their way to the business.
How do payment gateways work?
The main purpose of a payment gateway is to safely encrypt the passing of data between the customer and the business in order for payment to be successfully, safely and efficiently processed. The process is: –
- The customer submits an order to an online store.
- The store will direct the customer to an encrypted payment options page which is either hosted by the payment gateway or will transfer the details to it.
- The customer inputs their card information and the payment gateway securely contacts the card holder’s account with details of the transaction, including the business, payment amount and the merchant bank details.
- The credit card holder’s account uses these details to decide whether to authorise payment, depending on security checks and sufficient funding.
- If deemed successful by the card holder’s account, payment makes its way to the merchant’s account. Confirmation of whether the transaction is successful or not is sent to both the customer and the business.
The difference between payment gateways and payment processors
More often than not, you will see ‘payment gateways’ and ‘payment processors’ used interchangeably. However, it is important to understand a few important distinctions.
A payment processor can analyse, encrypt and transmit data from the credit card holder to the merchant bank.
A payment gateway can do everything a payment processor can do, but also authorise the transfer of funds from the card holder’s account to the merchant account.
What to look for in a payment gateway
When purchasing a payment gateway, it is important to look for one that has: –
- High Security (PCI DSS Compliance Level);
- High Compatibility;
- Relevant Fraud Detection;
- Efficient Bank Approval Process.
When selling products online, you have a legal requirement to your customer to ensure their data is secure. As such, you need to check the PCI compliance level of any payment gateway provider.
To be safe, only choose a payment gateway that offers PCI DSS Compliance Level 1, like LumiPay.
A payment gateway is an essential computer software. As such, they need to be able to integrate with different programs, for example, the content management website that you use.
Relevant Fraud Detection
No customer wants their card details stolen and used in a fraudulent transaction. But, no customer wants their card declined for a legitimate transaction either. This is why there are vigorous checks per transaction.
The best payment gateways offer fraud protection at the relevant level to ensure that only fraudulent transactions are recognised.
Efficient Bank Approval Process
Neither the customer nor the business wants the online payment approval process to take an age. The best payment gateways offer a streamlined and quick service, that processes the data quickly yet safely.
The concept behind these gateways is relatively simple, credit card payments are safe, secure and directly linked to the customer’s bank, but the real-world ramifications for customers and businesses if they go wrong can be vast. Consequently, choosing a payment gateway that provides the best security and the most streamlined and compatible services is essential for businesses who wish to please their customers.