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What is a Payment Gateway? How it Works, Features, Example, Security

Features & updates - 24 Feb, 2024

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Imagine you have an online store. People want to buy your stuff, but how do they pay you? That’s where payment gateways come in. They’re like a special tool that lets your customers pay online easily, using their credit cards, debit cards, or other options.

What is a Payment Gateway?

A payment gateway acts as the interface for processing payment cards and securely transmitting customer data to the merchant-acquiring bank. It’s crucial for authentication and data transmission in the payment process.

Imagine you’re buying something online. You enter your credit card details and click “pay.” A payment gateway is like a behind-the-scenes system that takes your information, sends it securely to your bank, and gets their approval. Once approved, the gateway sends the money to the seller and lets you know everything is complete.

In short, it’s a secure service that allows businesses to accept your digital payments (like credit cards) safely and easily. It works for online stores, mobile apps, and even some physical stores that use contactless payments.

Features of Payment Gateways

Security: Like a guarded tunnel, the gateway protects your sensitive information, such as credit card details, by scrambling it with a special code. This makes it unreadable for anyone trying to steal it.
Fraud Prevention: Think of the gateway as having security guards. They check for suspicious activity and follow strict rules to prevent fake transactions.
Payment Options: Just like having multiple lanes on the bridge, the gateway allows you to choose how you want to pay - credit card, debit card, e-wallet, and so on.
Speed: The gateway works quickly, like a fast lane, to process your payment right away, so you don’t have to wait.
Easy for Businesses: Setting up the gateway is like adding an extra lane to the bridge. It can be smoothly integrated into the store’s existing system.
Tracking and Reports: The gateway keeps track of everything, like a watchful eye. It provides the store with reports and information about the transactions, similar to traffic statistics on the bridge.

How Does a Payment Gateway Function?

Payment gateways operate differently depending on their application in online environments or physical stores.

Online Payments:

Merchants can integrate with a payment gateway through:
1. Third-party service providers: These providers handle the secure flow of customer information and connect the Merchant’s website to the payment processing network.
2. Application Programming Interface (API): This allows the Merchant’s website to directly interact with the payment network for authorization and receive responses from the issuing bank.
In-Store Payments:
1. Physical point-of-sale (POS) terminals or card readers are used.
2. These devices connect securely to the payment processing network via a secure internet connection.

How does the payment gateway work?

Here’s how a payment gateway helps make that purchase safe and smooth:

Setting Up Shop: You (the Merchant) choose a trusted payment gateway service and add it to your website’s checkout. This lets customers pay with different options like credit cards.
Customer Checks Out: You add items to your cart and choose how you want to pay (e.g., debit card). You then enter your card information securely on the payment gateway’s page, not the store’s website.
Secured Payment: The gateway scrambles your card details like a secret code and checks for suspicious activity. This helps prevent fraud.
Bank Verification: The payment gateway sends the encrypted information to your bank (the issuing bank) to confirm that you have enough money. They also contact the card network (e.g., - Mastercard) to double-check everything.
Approval or Denial: Your bank lets the gateway know if the payment is approved. The store is then informed, and you’ll see a confirmation message if everything went smoothly. If not, you might be asked to try again.
Behind the Scenes: Once approved, the banks transfer the money. It takes a few days for the store to receive the payment, and you’ll get confirmation that your order has been placed.

Difference between the Payment Gateway and Payment Processor

Imagine you’re buying something online. Here’s the simplified breakdown:

Payment Gateway: The secure checkout page where you enter your credit card info. It collects and checks that info. Think of it as the waiter taking your order.
Payment Processor: The behind-the-scenes service that handles the actual transfer of money between your bank and the seller’s bank. It finalises the payment. Think of it as the kitchen preparing and delivering your food.

Some companies offer both gateway and processor services (like Easebuzz), while others specialise in one or the other. Both are needed for smooth online transactions!

How Can Payment Gateway help you in keeping your information secure?

How do your credit card details stay secure when you shop online? Payment gateways act like armoured tunnels for your financial information during online transactions. Here’s how they do it:

Imagine a secret code: Payment gateways scramble your information using a special code, like a really strong lock. This code, called encryption (think “fancy scrambling”), makes your details unreadable to anyone trying to steal them.
Secure pathways: Think of a safe and private road for your information to travel. Payment gateways use a secure connection (HTTPS) to send your data, making sure only the authorised parties can access it.
Double-checking: Just like comparing fingerprints, payment gateways use special mathematical codes to verify that your information hasn’t been tampered with. If someone tries to change the data, the code won’t match, and the transaction gets flagged for suspicion.
Identifying suspicious activity: Payment gateways are like watchful guards. They check the location (IP address) of the transaction to see if it seems unusual. If it looks suspicious, they might put the transaction on hold for further investigation.
An extra layer of security: Some gateways ask for an extra verification step, like a one-time password sent to your phone, before finalising the purchase. This makes it even harder for unauthorised individuals to access your information.

By using these security measures, payment gateways work hard to create a safe environment for online shopping. This builds trust between you and the stores you buy from, giving you peace of mind when using your credit card online.

Why Using a Payment Gateway Benefits Your Business

Think of a payment gateway as a secure checkpoint for your online transactions. It acts like a shield for both you and your customers. Here’s how it helps your business thrive:

Strong Security: Payment gateways protect your business and customers from fraud by using advanced encryption and fraud prevention tools. This keeps your customer’s financial information safe and builds trust.
Happy Customers: Customers feel more secure when they see familiar and trusted payment options like credit cards, debit cards, or popular wallets. This encourages them to complete their purchases without worry.
Reach New Markets: Selling internationally? Payment gateways allow you to accept payments in different currencies, opening doors to a global audience. Imagine receiving payments in over 100 currencies, with the gateway handling conversions automatically.
More Payment Choices: Offering various payment methods like cards, net banking, or digital wallets gives your customers the flexibility to choose what suits them best. This makes the checkout process smoother and faster.
Faster Transactions: Payment gateways speed up the process of approving and settling payments. This can lead to more sales and fewer abandoned carts, as customers won’t get discouraged by a slow checkout.
Gain Valuable Insights: Most gateways provide detailed reports on your transactions. This real-time data helps you understand your business better. You can see what’s selling well, identify areas for improvement, and make informed decisions to boost your success.

By integrating a payment gateway, you gain a secure, efficient, and customer-friendly solution. This paves the way for your business to flourish in the exciting world of online commerce.

Payment Gateway Security: Protecting Your Money Online

Payment gateways act as secure bridges between online stores and your bank, safeguarding your financial information. Here’s a look at how they achieve this:

Tokenization: No more endless card detail entry. Tokenization replaces it with unique codes, making them useless even if intercepted.
Fraud Prevention: Payment gateways are vigilant guards. They use sophisticated tools to analyse transactions for suspicious activity and block them if needed.
Secure Storage: PCI DSS is like a high-security vault for your card data. Reputable payment gateways follow these strict rules to keep your information safe.
Mobile Wallets: Use mobile wallets like Phonepe, Paytm, or Google Pay for secure in-store and online purchases without revealing your card details.
3DS Authentication: Some transactions require an extra step, like a one-time phone password, for added security.

Remember:

Payment gateways are essential tools that allow online stores to accept your card payments.
They handle various tasks, including collecting your payment information, checking its validity, and ultimately approving or declining the transaction.
Payment gateways can work in different settings. In stores, they connect to card readers or point-of-sale systems. Online, they act as the payment terminal, processing payments made through various methods like credit cards, digital wallets, or UPI.
Security is paramount. Payment gateways encrypt your sensitive information and perform fraud checks before sending the data to your bank for authorization.

By understanding how payment gateways function, you can feel confident knowing that your financial information is well-protected when shopping online.

Example of a payment gateway

Imagine buying something online. Instead of swiping your card at a store, you enter your details on a website. That’s where a payment gateway comes in. It’s a secure system that helps businesses accept payments like credit cards.

Here’s a simpler example:

Think of a company like Easebuzz. They offer a payment gateway system.
This system allows businesses like food trucks to accept card payments easily, even when they are on the move.
The customer swipes their card on a small device connected to the seller’s phone.
The payment gateway then sends this information securely to the bank for approval.

Payment gateways are constantly evolving to offer even faster and more convenient ways to pay.

FAQs on Payment gateways

What is the payment gateway?

A payment gateway is like a secure tunnel between your online store and your bank. It handles payments safely, protecting your card details.

Is UPI a payment gateway?

UPI (Unified Payments Interface) itself isn’t a gateway, but it acts like a link between your bank account and various payment apps. These apps often use payment gateways to process transactions.

Which payment gateway is the most secure one?

Security features can vary, but the Easebuzz payment gateway follows strict standards to safeguard your information. Choosing a well-established gateway is generally advisable.

How easy is it to integrate payment gateway in the website or App?

Integrating a payment gateway can involve some technical steps, but most providers offer tools and resources to simplify the process.

Which payment gateway offers integration to Shopify, Woocommerce, Zoho, Wix, Tally, etc?

Easebuzz payment gateway integrates with popular platforms like Shopify, WooCommerce, Zoho, Tally, etc. Check the Easebuzz gateway’s website for a list of supported platforms.

What is a checkout payment gateway, and how does it work?

A checkout gateway is the part of the online payment process where you enter your card details. It securely transmits this information to the bank for verification and processes the transaction.