This article will guide you through the benefits and importance of utilizing a payment gateway and provide step-by-step instructions on seamlessly integrating it with your existing business systems. It also highlights the advantages of building a custom payment solution.
So, get ready to enhance your payment processing, improve user experience, and boost customer satisfaction.
A payment gateway is a service that enables secure online transactions between a buyer and a seller by authorizing the transfer of funds from the buyer's account to the seller's. It acts as a bridge between the two, serving as a mediator in the transaction process.
How exactly does it work?
When a buyer initiates a payment transaction, the payment gateway first verifies the authenticity of the payment source, such as the buyer's credit card details or banking information. It then encrypts and securely sends this information to the seller's payment processor, which verifies the transaction request and checks for available funds.
If the funds are available, the payment processor sends an authorization message to the payment gateway, which confirms the transaction and notifies the buyer and seller of the successful payment completion. The seller can then provide the goods or services to the buyer, knowing that payment has been processed successfully.
Payment gateways use encryption and other security measures to protect sensitive payment data from unauthorized access and fraud. Some payment gateways offer additional features like fraud prevention and chargeback management.
A payment gateway is a third-party service provider (such as PayPal or Amazon Pay) that enables secure online transactions between customers and merchants. Payment gateways typically charge a fee for their services based on transaction volume or a monthly subscription.
On the other hand, a payment processor is a service provider (such as Stripe or Braintree) that facilitates electronic transactions by communicating between the merchant acquiring bank and the customer issuing bank. Payment processors provide a more comprehensive solution that includes risk management, chargeback prevention, and transaction authorization. They also offer various services, such as recurring payments, mobile payments, and fraud detection.
While both solutions facilitate online payments, they play different roles in the payment process. Payment gateways are the intermediary between the merchant and the customer, while payment processors manage and authorize transactions with the banks.
If a business wants to collect payments from customers smoothly and efficiently, it needs to choose an appropriate payment integration method. Let’s take a look at existing options.
Hosted Gateway: A hosted gateway is a payment integration option where the customer is redirected to a third-party website or payment gateway to complete the transaction. In this method, the customer enters their payment information on a secure page hosted by the payment gateway. The payment gateway then returns the transaction information back to the merchant's website. The hosted gateway is a popular option for small businesses because it requires minimal technical knowledge and is typically easy to integrate.
Direct Post Method: The direct post method is a payment integration option where the customer enters their payment information directly on the merchant's website. The information is then passed on to a secure payment gateway for processing.
Non-Hosted (Integrated) Method: Non-hosted (integrated) methods use an API, which allows the merchant to control the checkout experience and process payments on their website. This type of payment integration requires more technical knowledge, but it allows for greater customization and control over the payment process.
The choice of a payment integration option should depend on the business size, development skills, how customizable they want the checkout experience to be, and their financial situation. Hosted gateway and direct post methods are simpler, easier to maintain, with a lower risk of errors, and therefore are most suitable for small businesses. On the other hand, the non-hosted (Integrated) Method is better for businesses that require better customization options and management of the payment process. Regardless of which payment integration option businesses choose, they must ensure that the security of their payment processing system is up to the highest possible standards.
The payment processing flow encompasses a series of intricate steps. The transaction starts with the customer, who triggers it by clicking on the "Purchase" button and providing the necessary transaction details, such as the card number, expiration date, and CVV. Once the transaction data is provided, it is encrypted to ensure its privacy and safety. The encrypted data is then passed to the merchant's web server via a highly-secured SSL connection. The merchant forwards the encrypted data to the payment gateway that stores the information in a protected storage mechanism after it is decrypted.
The payment gateway transmits the transaction data to the payment processor via another encrypted SSL channel. They interact with card networks like Visa, Mastercard, American Express, or Discover.The card network verifies the transaction data and forwards it to the issuer bank that produced the card held by the customer. At this stage, the issuer bank approves or rejects the transaction and sends a code indicating the transaction status back to the payment processor.
The payment processor then relays the transaction status to the payment gateway, which returns the status to the website. The customer then receives a notification of the transaction status through the payment system interface to confirm if the transaction went through successfully. If the transaction is accepted, the funds are transferred from the customer's account to the merchant's account. This process is executed within a few days, and the transaction becomes complete when the acquiring bank confirms receipt of the funds.
The following steps will help you seamlessly integrate a payment system into your website:
Here is a list of popular payment gateway providers, along with their key features:
Businesses can always opt to create their own payment solution. This is a complex and multi-step process that requires careful planning and execution, but it will provide many benefits. To start, a company must register as a payment gateway provider with one or multiple credit card companies through acquiring banks. This process will allow the payment processing company to securely exchange necessary information with credit card providers and generate payment transactions.
The next step is to contract with banks that will act as payment processors for your payment gateway. These banks will handle actual transaction processing, such as checking for sufficient funds, authentification of the cardholder, and payment transfers. The contracting of multiple banks can provide different transaction fees and rates for international transfers or currency exchange, which could be beneficial.
Afterward, the company must develop an API for their payment gateway. The API is essential and must comply with stringent security measures put in place by PCI DSS guidelines. The payment gateway solution must also implement secure and robust tokenization technology to encrypt sensitive data and prevent fraudulent activities. Tokenization improves security and lowers chargebacks by replacing sensitive information with dummy data.
Note: Integrating additional payment methods such as PayPal, Bitcoin, or mobile wallet options (e.g., Apple Pay) requires separate integrations with their respective APIs. The payment gateway provider must also develop a merchant administrative web application or an admin panel to allow their staff to control merchant operations. It is possible to use open-source payment gateway solutions such as OmniPay, PayU, or Active Merchant. However, these options have limited customization options and might not align with the company's exact needs.
A custom payment solution can offer a range of benefits that are essential to businesses and merchants alike.
Payment gateways play a crucial role in facilitating secure online transactions for businesses and customers alike. Choosing the right provider will depend on your specific business needs, the types of payments you want to accept, and the security and convenience required.
If you want to build your own payment solution, Clover Dynamics is at your service. Using our extensive experience, we provide cutting-edge fintech solutions that accelerate business operations, reduce operating costs, increase income, and provide complete transparency of financial transactions for end users.
Contact us and we’ll find a way to help you!