Introduction To Payment Gateways: What You Need To Know
Updated: Nov 13
Payment gateways are what keeps the online economy ticking. It ensures the digital ecosystem keeps rolling smoothly by allowing customers and businesses to make online payments. Now, if you have an online business, then odds are you are somewhat familiar with the idea of payment gateways.
You don’t need to be an expert on payment gateways to run a successful business, but you should know the basics. Knowing the basics of how money flows from your customer into your business will ensure you provide the best service.
Zed was founded by Alan Safahi who has 30 years of experience working with tech and financial startups and with him at the helm we’ve been able to provide comprehensive payment orchestration services. ZED Network provides simple payment gateway solutions for online businesses, which puts us in an excellent position to talk about what they are. Here today, we will give you an introduction to what payment gateways are for online businesses.
This introductory article will find the payment gateway definition, understand what a payment gateway is, and how it works. However, there are other things you should know about before we go into the main discussion; let’s talk about the parties involved in the transactions.
The Business/Merchant: So this is who you are to your customers. Whether you provide travel, retail, eCommerce, gaming, Forex, or other services, you will be known as the business in the transaction because the money comes to you.
Customer/Cardholder: Your customers are the ones who want to buy your product or take up your services and are willing to pay for them.
The Issuing Bank: This term refers to the customer’s credit or debit card issuing bank on behalf of car schemes like Mastercard, AMEX, Visa, ETC.
The Acquiring Bank: Now, this is your bank or the bank that handles your business account. This is the bank that the issuing bank with the information to complete the transaction between your customer and your business.
Now that you know all the players involved in the transaction when using a payment gateway, it’s time to get on with our discussion. So let’s start with the “What” and then slowly make our way down to the other parts.
What Is A Payment Gateway
The basic definition of a payment gateway is that it’s a technology that takes in and transfers the payment data from the customer to the acquiring bank. Once that data is transferred, the payment gateway receives information from the bank about the transaction and lets the customer know if it was accepted or declined.
The primary purpose of a payment gateway is to validate customer’s card details securely and ensure that they are there for the transaction to go through. So it’s the interface between the website and the acquirer. Because the payment gateways are dealing with sensitive data like credit card information, there needs to be an added security level.
Most of the payment gateways available have top-end encryption that ensures information can pass through without any risk. Now that you know what a payment gateway is, let’s talk about whether you need a payment gateway.
Why Do You Need A Payment Gateway?
So when you see that the payment gateway acts as a middleman, you can quickly conclude that you may not need one for your business. Since you run an operation online, most of your customers will come from different locations, unlike a brick-and-mortar shop.
Zed Founder and entrepreneur Alan Safahi, “You can’t go providing all of your customers with a personal POS terminal now, can you? That’s the reason you need a payment gateway. Because you cannot use a POS terminal to get your client’s card information.” Now, card fraud is a considerable risk for you and your customer in “card not present” transactions, and that’s where the magic of payment gateways happens.
As a business, you have to be ready to take in card information on the payment page and provide ample protection for your customers and protect your business from fraud. Payment gateways can offer the protection you and your customers need from fraud and chargebacks.
These gateways also protect from fraudsters initiating illegitimate transactions that can be devastating to your business and brand’s reputation. That’s why payment gateways work as a gatekeeper to customer card data.
Along with protection from fraud, payment gateways also ensures that your business is protected from expired cards, insufficient funds, closed accounts, and exceeding credit limits. You see, these are the wonders of payment gateways, and now we will talk about how it works, so let’s begin.
How Do Payment Gateways Work?
Now that you know what payment gateways are and why you need them, let’s talk about how they work and precisely how the transaction process is carried out.
Knowing the process will help you understand the payment gateway solutions out globally and ensure you choose the perfect one for your website. Before we go through the process itself, let’s first discuss a few features that the best payment gateways have.
The best payment gateways usually have a hosted payment page.
Best payment gateways also have a server-to-server integration, meaning more accessible and better communication and fewer red flag chances when a transaction is happening.
Client-side integration is a sign of the best-in-class payment gateways. It offers encryption-at-source, meaning it encrypts sensitive information on the client-side device.
That covers the information you need to know about what makes a payment gateway best in the business. So now, let’s go through the payment process:
The first step of the process is the customer choosing a product or service, and then they come to a payment page that offers multiple payment options.
Once your customer enters their credit or debit card information on the payment page, information like the cardholder’s name, card expiration date, and CVV number is securely stored on the payment gateway.
The gateway then encrypts the data, runs a fraud check, and then sends the information to the acquiring bank.
The bank then sends the information to the card schemes like Visa or Mastercard.
The schemes run another fraud check and then sends the verified data back to the issuing bank.
The Issuing bank runs fraud screening and then authorizes the transaction. The approval or declined message is sent to the card schemes, and then the schemes send the message back to the acquiring bank.
That message then is sent back to the payment gateway, which transmits the message of approval or declining transaction to you, the business owner.
If the transaction goes through, the acquirer collects the payment amount from the issuing bank and puts it into your account.
The actual settlement process for the fund is pre-determined in your agreement with the payment gateway company.
Once the transaction goes through, your payment page shows your customer a paid message and gives transaction information accordingly.
Find The Perfect Payment Gateway Solutions
So there you go, that’s our way to introduce you to payment gateways. Here we covered what a payment gateway is and why you need it and how it works to ensure secure payment.
Now you may not be able to integrate a payment gateway into your website, but that’s where we come in. We here at ZED Network help businesses with payment integration and other payment solutions to ensure our clients can take their business to the next level.
So if you have any other questions regarding payment gateways, then feel free to contact us. We will gladly help you out. Until then, see you!