What Is a Payment Gateway and How Your Business Benefits from It?

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While cash transactions in the global arena are about 83%, digital payment systems are still on the rise. Online purchases are convenient and fast. With the continued advancement in technology, selling and buying around the world is possible.

Online transactions involve credit or debit cards. Alternative modes, such as net banking, wallets, and UPI, are also gaining precedence. With the anonymity and dynamic nature of online transactions, security is a significant concern. 

Fortunately, online merchants can use a payment gateway. Businesses that run an eCommerce site need a payment gateway. Find out here what is a payment gateway and how your business benefits from it.


What Is a Payment Gateway?

A payment gateway is a software connecting your bank account to an online platform for payment authorization. Payment getaways are third parties that transfer money from your account to a seller’s payment portal. The software has grown in popularity due to its security features. 

Illustratively, when buying a shoe on a site such as Foot Locker, you click to pay using your preferred mode. A payment gateway transfers the money from your bank to Foot Locker. The process makes online purchases quick and secure. 

You should note that payment gateway and payment processors are different. A payment processor is a system that assists in the analysis and transmission of transaction data. It transmits information to the bank issuing the debit or credit card number. 


Types of Payment Gateways 

On-site payment gateways are used by most large businesses. With this type of payment gateway, you do the payment and checkout on your customer's behalf. The approach gives you control of the transaction, which translates to increased responsibility.

Another payment gateway is the on-site checkout, off-site payment. This approach is where the checkout is on your site, but the processing of the payment is in the back end. Through this payment method, you can't control the user's experience, but the resulting simplicity is a great relief.

Redirects are probably amongst the most popular types of payment gateway. Redirects occur when a gateway sends a customer to an online payment page for completion of a transaction. For a small business, redirects offer the ideal security and convenience for merchants and customers.


How Does a Payment Gateway Work? 

Now that you’ve known what is a payment gateway read on to understand how payment gateway services work. A payment gateway starts by encrypting sensitive payment details. The encryption secures the information between a merchant and a customer. 

The first step involves customer placement of an order on the visited website. The merchant takes the information and transmits it securely to the payment gateway. The customer is free to use any payment method listed on the site.

The dealer routes the transaction to the issuing bank to authenticate the transaction. The bank can decline or authorize the transaction depending on the state of the customer’s account. Based on the response, the payment gateway conveys the right message to the merchant.  

Once the bank authenticates the payment, it sends it to the payment gateway, which in turn, forwards to the merchant. 

With a payment gateway, you will enjoy security, convenience, and faster processes.


Why Do I Need a Payment Gateway for My Business?

One of the recent data breaches at Capital One led to the exposure of sensitive information of more than 147 million customers. Data theft is a major concern in online transactions. One of the sought-after advantages of an online payment gateway is secure payment processing. 

Reliable online payment gateways keep the customer's data secure besides protecting merchants from unreasonable fees. With payment gateways, buyers and sellers don't have to worry about the exchange of sensitive data. The systems avert cases of fraud.

Some of the tools used for fraud screening include the Card Verification Value or Address Verification Service. These tools avert any fraudulent transactions. 

Payment gateways help in the expansion of the customer base. Shoppers across the world can shop confidently in your online store. With the seamless payment approach, you'll only need to strategize on delivery.

Using gateway payment services makes the transaction process faster. The manual payment approach can have hitches that make the process longer. Your customers will appreciate a system that reduces long waiting times.

The convenience of the payment gateway is another benefit worth pursuing. Customers can shop at any time as your store remains operational 24/7. One doesn't have to make a trip to the bank and to the store to make a purchase.

Online payment gateways accept debit and credit cards. With the increased features of these options, the payment is efficient and seamless. A client can make multiple transactions and verify accounts as necessary. 

Your customers will have the benefit of recurring billing. An online payment gateway provides customers with monthly or weekly receipts. Having the receipts is crucial for future reference or as proof of ownership. 


How to Set up a Payment Gateway

You can only have a payment gateway if you have a legal business. Get a tax ID, commonly referred to as an EIN. If you don’t have a website, set up one. 

Have an active business bank account and choose a processor such as PayPal. You should be able to receive and process payments from the processor. If you have a merchant account, a payment gateway can connect to the account. 

With the best payment gateways provider, you don’t have to worry about setting up an account. You will get account set-up assistance. What's more, your provider will guide you on software usage. 


What Is a Payment Gateway? It's Indispensable in Your Ecommerce Business

Any business that operates online can benefit significantly from payment gateway services. 

Unfortunately, some online sellers don’t know what is a payment gateway. This guide has provided information that can guide you in getting an online payment gateway. 

Payment gateways are vital, especially with the growing scope of online transactions. A business will benefit from the payment security and increased clients' confidence. If you don't have the system, you need to go back to the drawing board.

Do you have any business-related, ecommerce, online retail, or payment questions? Follow the Bootstrap Business Blog today and enjoy a wide range of tech topics. It pays to educate yourself on these matters!

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