What is a payment gateway

payment gateway
In simple terms, a payment gateway is a network through which your customers transfer funds to your account. Payment gateways are very similar to the point-of-sale terminals used in most physical stores. When using a payment gateway, customers and businesses need to work together to complete a transaction.

Once your customer has placed an order, the payment gateway verifies the details of the customer’s card and checks if they have sufficient funds in their account to pay you.

Benefits of Having a Payment Gateway

1. Convenience

Integrating with a payment gateway means your customers can make purchases at any time, whether you are in the store or not. Allowing your customers to shop at their leisure adds convenience for both them and you.

2. Faster Payments

As a business owner, you know how challenging it can be to get paid. Instead of the hassle of agreeing on a payment day and then forgetting about it, many customers prefer to simply pay instantly and be done with it. Payment gateways allow them to do just that, resulting in a beneficial situation for both you and your clients.

3. Improved Security

The main concern for customers regarding online payments is security. In 2017, losses from credit card fraud in the United States amounted to $2.5 billion.

Using payment gateways significantly reduces the risk of credit card fraud for three main reasons:

  • The customer’s card information is transmitted securely to the payment gateway. This means that only the customer and their issuing bank can access their information.
  • Every payment gateway must comply with PCI DSS standards, meaning they follow certain security standards to ensure that your customers’ card information is processed securely.
  • Card services provide an additional security protocol called 3-D Secure. This requires the customer to create a password for each card they use to make an online payment.

How a Payment Gateway Works

A payment gateway, also known as a virtual Point of Sale (POS) terminal, incorporates the necessary technologies for processing payments with debit or credit cards on websites offering secure purchase options.

With a virtual POS, once configured for operation on a website, the client’s browser encrypts the provided data to send it through two types of systems: SSL (Secure Socket Layer) or TLS (Transport Layer Security).

The payment process functions as follows:

  1. The customer initiates a purchase request by adding products to the shopping cart.
  2. Then, the customer proceeds to request payment based on the virtual store’s POS system.
  3. The payment gateway comes into play, with encrypted data exchanged between the customer’s bank and the merchant’s bank to confirm or deny the transaction.
  4. Upon payment approval, the payment processor transfers funds to the merchant’s bank.
  5. Both the customer and the merchant receive confirmation of the payment process.

At this point, it’s necessary for the business to confirm the receipt of the purchase request and proceed to confirm the product delivery date and other integrated sales process tasks.

Each of these gateways charges a commission based on the chosen model for electronic payments:

  • Aggregator Model: The gateway collects the payment, and the merchant sets the interval for receiving bank transfers, which can be daily, weekly, bi-weekly, etc. The gateway’s commission is based on the frequency of collection chosen.
  • Gateway Model: In this type, the money is directly transferred to the account chosen by the virtual store, meaning there is no collection, just a bank transfer. For this, it’s mandatory to have the Unique Incocredit Code that identifies the merchant to franchises like Visa, MasterCard, and American Express, etc., for control and prevention of banking fraud.

¿Are Payment Gateways Safe?

Modern payment gateways are usually very secure and employ various security measures to protect clients’ confidential information, like credit or debit card details.

Some of the security measures used by payment gateways include:

  • Encryption: The client’s credit or debit card information is encrypted so that it can only be read by the payment gateway and not intercepted by third parties.
  • Authentication: Various authentication methods are used, like verifying the cardholder’s identity through a password or a security code.
  • Fraud Detection: Advanced algorithms are used to detect suspicious behavioral patterns and prevent fraud.
  • Compliance with Security Standards: Payment gateways often comply with security standards like PCI DSS (Payment Card Industry Data Security Standard) to ensure data safety.

However, it’s important to note that no platform is 100% secure, and there is always a risk of fraud or data breach. Therefore, merchants should choose a reliable payment gateway and take additional steps to protect their customers’ confidential information.

How to Choose a Payment Gateway

When selecting a provider for a payment gateway, essential factors include security, experience, and the ability to optimize payment processing, especially for credit card payments.

Additionally, consider the type of contract, fees, flexibility, and ease of integration with your existing payment architecture.

Let’s delve into some of the most important points to ensure you choose the best option for your needs.

1. Experience: Be aware that some providers may not accept payments from certain banks, so it’s crucial to research whether they support the payment channels you most require. It’s also beneficial if the provider understands your business’s operations and focuses on services that can enhance your online sales capacity.

2. Customer Service: When choosing a credit or debit card payment service for your customers, it’s important to know that your money is in good hands. Having a provider with excellent customer service that offers 24/7 support throughout the year will provide greater security for maintaining a constant and reliable service.

3. Ease of Integration: Considering this aspect when selecting your payment gateway provider will improve user experience in accessing the shopping cart, generating faster and more accessible sales while avoiding unnecessary disruptions during payment. Therefore, adaptation to the existing architecture is a fundamental factor in this process.

4. Innovation: A provider that keeps up with system updates and changes in financial technology is essential. However, it’s not about continually sending updates that might disrupt your platform’s daily operations, but rather about providing a solid and reliable service.

5. Contract, Exclusivity Clauses, and Commissions: Before deciding on a provider, understand the type of contract they offer and whether it includes exclusivity clauses that prevent you from having multiple providers simultaneously. Additionally, the contract should clearly outline the agreed services, commissions, duration, etc., to avoid future legal issues.

In Canada, there are several payment gateways to choose from, including:

  • Braintree: Best overall
  • Stax: Best for high-value transaction
  • Stripe: Best for customization
  • Square: Best for retailers
  • Helcim: Best for volume discounting

Among many others…

Each offers different benefits for both the business and the buyer, so it’s necessary to understand the needs of your virtual store to provide better options for your customers.

How to Integrate a Payment Gateway

You have several options for integrating with a payment gateway, depending on how you want to receive payments from your customers.

  • The first integration category redirects your customers away from your business website to pay:

This is suitable for businesses that don’t receive much online traffic. After your customer clicks on the payment link, they are taken to your payment processor’s page to enter their card details and make the payment, after which they are redirected back to your website. An example of this type of payment gateway is PayPal. These payment gateways can be customized, for example, by adding your business name or logo to the payment page. The downside of this method is that your business can’t control the entire user experience since the gateway is external.

  • With the next category, your customer remains on your website throughout the entire payment process, and the payment itself is handled by a payment gateway.

Once your customer enters their details on your business site, the information is sent to the payment gateway’s URL, where the actual transaction takes place. As your customer stays on your site throughout the purchase and isn’t redirected, this type of payment gateway is better for businesses that receive most of their revenue through online payments, as it provides a better customer experience. However, since you’ll be collecting your customer’s payment details through your own website, you must take the necessary precautions to ensure their information is secure.

  • The next type of payment gateway uses an API (Application Programming Interface).

This type is similar to the previous one, in that customers enter their card details directly on the business’s online payment page, but here their payment is processed through an API. These payment gateways can be customized with your business’s name and logo and offer complete control over the user experience. Businesses using them need to take care of PCI compliance and SSL certification on their own.

Overall, payment gateways simplify the online payment process for your business and help you receive payments faster, more conveniently, and with better security. If you’re considering accepting online payments or want to improve the method you’re already using, then a payment gateway is what you’re looking for.

If you wish to include a payment gateway for your online store, contact us.

Juan Esteban Yepes

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