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Understanding Payment Gateway

  • September 9, 2021

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What is a payment gateway?

А payment gateway is a technology commonly offered as a third-party service that captures and transfers payment data from the customer to the merchant/ business. Payment gateways in some ways keep the world running as it enables online payments for consumers and businesses. As the world recovers from the pandemic, payment gateways have made it possible for people to access essential services and buy things online even as they maintained complete physical distancing. If your business has an online presence, it is necessary for you to understand the essentials of online payment transactions so you can choose a reliable payment gateway for your clients and consumers. You could also reach out to your managed service provider for help and guidance on payment gateway integrations. Always remember that the most reliable payment gateways make it their business to deliver secure service, superior support, and competitive transaction processing fees. IT Support Vancouver can help you find the right payment gateway solution that fits your individual business needs. 

How does a payment gateway work?

Irrespective of whether you use physical or virtual payment gateways, the transaction flow remains more or less consistent. Mobile and online payments, however, often utilize digital capture files to process credit card information (instead of output from a credit card reader) for processing transactions through payment gateway services:

 

Step 1 - The customer makes a purchase using a credit card payment through the merchant’s credit card reader or e-commerce site

Step 2 - The online payment gateway gathers the transaction information and sends it to the relevant bank for processing (the merchant bank)

Step 3 - The payment gateway ascertains which credit card network (Visa, MasterCard, Discover, or American Express) is being used in the customer’s card

Step 4 - The payment gateway then sends the transaction information securely to the correct payment switch

Step 5 - The payment switch then requests the bank associated with the customer’s credit card (the issuing bank). It then sends the transaction information onto the accurate credit card network.

Step 6 - The card issuing bank checks for the authenticity of the transaction using fraud detection procedures. The bank also needs to confirm if the buyer actually has enough credit to validate this particular transaction.

Step 7 - The issuing bank approves (or rejects) the transaction. This information is then sent back through the credit card network to the merchant bank and finally to the payment gateway.

In its essence, the payment gateway acts as a conduit for the transaction to pass through several different channels in order to get processed. For an even deeper understanding of the process, please refer Managed IT Services Vancouver

If the payment is authorized, it means that the bank has appropriated the required funds to process the transaction at the point of sale. At this point in time, the seller, i.e. the merchant hasn’t received the payment yet. For the buyer, the transaction appears as “pending” on their credit card statement. Sometime later, when the merchant reconciles payments, it manually sends a batch capture, or “clearing” file, for all the pending credit card transactions. This is the point at which the pending transactions are finally committed, i.e. the merchant becomes eligible for the funds previously held in account by the bank. Shortly after, the funds are sent to the merchant’s bank. The funds become available to the merchant once the transaction is posted in the merchant account. The whole process is fairly straightforward unless there are delays involved due to technical issues either at the merchant end or at the bank end.

Types of payment gateway

Hosted payment gateways

Hosted payment gateways can be quickly recognized by the fact that they direct the buyer away from your website’s checkout page. This means that when a buyer clicks on the payment gateway link, they are then redirected to the Payment Gateway Provider or Payment Service Provider (PSP) page. The buyer is then required to fill out individual payment details. The transaction is conducted on the PSP page and once it's completed, the buyer is redirected back to the merchant website for the completion of the checkout process. This is what happens when you choose to pay through popular hosted payment gateway such as PayPal.

Self-hosted payment gateways

Self-hosted payment gateways typically collect payment details from the buyer, but this transaction happens within the merchant’s website. Once the details are filled in, the collected data is sent to the payment gateway’s URL. Some self-hosted payment gateways may require users to provide the payment data in a specific format. Others may need to use a hash key or secret key. Popular examples of this kind of gateway include Shopify Payments that is made available through Stripe.

API hosted payment gateways

API hosted payment gateways are fairly straightforward. The buyer enters his credit or debit card information directly on the merchant’s checkout page. The transaction is then processed using an API (Application Programming Interface) or HTTPS queries.

Which option is right for your business?

Payment gateways tend to confuse and rattle many merchants. With the right PCI-compliant level 1 full-service payment solutions provider, your payments will be more secure and convenient than ever before. Once you start using payment gateways, you start to realize just how many advantages you can accrue for your business. Most payment service providers offer a flexible, highly convenient payment platform that includes payment gateway, acquiring, popular Alternative Payment Methods, shopping cart integration and fraud detection services, all rolled into a neat package. 

Conclusion

If you have been trying to decide whether or not to implement a payment gateway solution into your business, consider reaching out to your managed service provider for guidance and the best payment gateway services. MSPs are highly experienced in dealing with payment gateway solutions, can guide you on which solution works best for your particular business needs, and most importantly, they have the talent, expertise and tools required to safeguard highly valuable financial transactions for your business. IT Consulting Vancouver can be a great place to start your research on Payment Gateway Integrations.

 

About Sam Goh:

Sam Goh is the President at ActiveCo Technology Management, a Cloud services Vancouver company. Sam comes from an operational perspective, his tenure at ActiveCo emphasizes working with customers to closely understand their business plans and to successfully incorporate the technology component to those plans. Under his leadership, ActiveCo has developed expertise which focuses on enriching the extensive customer relationships by integrating strategic and operational focus areas through consulting. When Sam and his wife Candee aren’t running ActiveCo, they enjoy road trips with their 2 children. Faith, family, friends and philanthropy lie at the heart of Sam’s personal beliefs.

 

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