Payment Gateway: Definition, Working & Features

With digitization taking place worldwide and the initiations of cashless transactions, Payment Gateway has a crucial role. An e-commerce application service provider provides it. In general, a payment gateway is a merchant service and an interface used to collect consumer payment information. The e-commerce service provider is the one that authorizes credit card or direct payment processing for e-businesses, online retailers, bricks and clicks, or traditional brick and mortar.

An example of a payment gateway is a platform such as PayPal. Paypal is one of the safest and fastest ways to send and receive money or make online transactions, thus providing a payment gateway. Similarly, there are multiple Payment Gateway companies that provide secure Payment transactions.

Working of Payment Gateway

Payment Gateway operates both in-store and online. The architecture of both ways differs from each other. The steps involved in a payment gateway include authorization, capture, and settlement.

Once the customer decides on the purchase and is ready to pay, he/she is directed to the payment gateway. The payment gateway collects the customers’ particulars. The particulars may be the credit or debit card details, UPI, bank details, etc. The payment gateway then verifies the account with the bank. It also checks for than availability of the required account balance for payment. After the authorization is complete, the payment gateway gets in touch with the merchant. The response from the bank is sent to the merchant.

Based on the bank’s response, the merchant either accepts or declines the transaction. The transaction is declined when there is any issue with the bank to the customer’s account. The merchant notifies the customer regarding the same. On the other hand, when the transaction is approved, the merchant requests the bank.

As a final step, the bank settles the payment with the payment gateway which in turn is settled with the merchant. Payment confirmation is sent to the customer.

Types of Payment Gateway

Payment Gateways can be classified into two categories based on the provider and the payment flow. Based on the provider, the payment gateway may be a Third-party Payment Gateway or a Bank Payment Gateway.

• Third-Party Payment Gateway: Innumerable payment options are provided by private players that make payment easier. Instant payment settlement, easy integration, and reconciliation are the pros of this kind of payment gateway.
• Bank Payment Gateway: Banks are directly involved in this method without any third-party engagement. Customer trust and security features are high in the Bank Payment Gateway.

Based on the payment flow, the payment gateways can be classified into various types. They are as follows.

• Hosted Payment Gateway: The payment process is taken care of by a Payment Service Provider (PSP). The customer is redirected to a PSP page from the actual business website. PSP collects the customer’s bank/card details. This method is said to provide a high level of security and a user-friendly environment.
• Self-hosted Payment Gateway: In the case of a Self-hosted Payment gateway, the merchant website directly collects the customer’s details eliminating the need for a PSP. This enabled a faster checkout process. However, complete technical support as in hosted payment gateway would not be available.
• API- hosted Payment gateway: Here, both the payment details and processing are handled by the merchant website using an Application Programming Interface (API). It can be integrated with different setups like mobile phones.
• Local Bank Integration Gateway: As the name goes the customer is redirected to the merchant’s website to exchange and input information. This is an entry-level solution with a basic payment feature.
• Off-Website Payment Gateway: This allows payment methods off the website. It supports various payment methods like UPI, wallets, etc.

Security Features of a Payment Gateway

Dealing with payments online, it is important to have strong security systems. The advances in technology today have provided high-level security features for safe and secure transactions. A few of the notable features are listed below.

1. SSL and TLS Protocols

Secure Sockets Layer (SSL) and Transport Layer Security (TLS) are communication protocols. They are used in encrypting the data for transfer between servers, users, systems, and applications. The common application of these protocols is to provide a secure connection over web browsers that are not secure. However, it is also used in email, instant messaging, FTP, VoIP, and many other TCP-based protocols.

2. PCI DSS Compliance

PCI DSS stands for Payment Card Industry Data Security Standard. It is a security policy to protect online transactions and prevent the misuse of the customer’s debit/credit card information. The set standards are mandated by the card brands. Their major principle is to build and maintain a secure network. They maintain a vulnerability management program and frequently monitor and test the networks to protect the cardholder’s data and ensure the maintenance of an information security policy.

3. Tokenization

It is the process of using a surrogate value as a token in the place of sensitive information. Thus when credit/debit card information is transferred across servers during the payment process, it is replaced with a token. This token is a kind of reference that maps back to the hidden sensitive data through a tokenization system.

4. Address Verification Service

Address Verification Service (AVS) is a tool used to detect suspicious and fraudulent credit card activities. The service is provided by credit card processors and issuing banks to merchants. It verifies the authenticity of the person placing the order. It prevents unauthorized users from misusing a credit card on any eCommerce website.

5. 3-D Secure

This protocol provides an additional security layer for card-based online transactions. 3-D stands for the three domains that interact using this protocol. The domains include the merchant/acquirer domain, the issuer domain, and the interoperability domain. 3-D Secure is automatically enabled when the bank issues the card to the customer.

How Much Payment Gateway Cost?

The Payment Gateway fee is usually paid by the product/service seller. The cost varies for different payment gateways and methods. It is usually calculated as a percentage of the transaction amount. The amount also varies based on the risk involved in the payment transaction. The price charged by the payment gateway is referred to as the Transaction Discount Rate (TDR) or Merchant Discount Rate (MDR).

The fees are determined by several factors, including the type of transactions performed, transaction frequency, market type and overall income made by a company. The charges may include a set up fee, annual maintenance charge, discount rate for charges and Integration charges.

Generally, 2.8% is charged through payment gateways. UPI standards and Rupay credit cards account 0% while 0.4-0.9% for Mastercard and Visa Debit cards. This particulars are more related to Paytm. Check out the charges of different payment gateways before proceeding with the same.

Why Opt For a Payment Gateway?

Payment Gateway methods are said to offer a myriad of benefits. They include the following,

• Transaction success rates: The Transactions are done with ease and the success rates of the transactions are high.
• Security: Payment Gateways offer to ensure that transactions are secure and safe. It protects against fraud and data breaches.
• Customer Trust: Based on the reputation, each payment gateway holds the customer’s trust in them.

Further, payment gateways are fast, convenient, and simple.

This article on Payment Gateway must have provided you with basics on what is a payment gateway, its types, security features, pricing, etc. There are a wide range of payment gateway options available.

FAQs: Payment Gateway

1. What is the best payment gateway in the market?

As we know, the best payment gateway is one that helps secure and easy transactions. Such payment gateways include PayU, Instamojo, Billdesk, etc.

2. Why do we use a payment gateway?

We use a payment gateway to process the payments securely by verifying the user. This portal authenticates the user and helps with the payment.

3. What is a payment gateway fees?

The fees vary with different payment gateways and methods. A certain percentage of the transaction amount is charged a fee. The percentage range varies for credit and debit cards.

4. Are payment gateways safe?

Being an intermediary between the customer and merchant, payment gateways offer safe and secure transactions of data between the servers.