Moving from the traditional methods of payment such as cash and card and setting up an e-store with an integrated online payment system is often perplexing and frustrating for small business owners. The reason being, most merchants are often unclear on payment gateways, its functionalities and where to start. Many others get wedged between questions of compatibility and security of online transactions. If you are contemplating on upgrading your transactions from offline to online mode, here’s a simple article to help out with the basics.
What is a payment gateway?
A payment gateway is an e-commerce application that authorizes payments between a merchant and a customer. It facilitates online payment between a website and a bank, meaning that customers can make online purchases and make direct payments to the merchant’s bank account through an integrated gateway. It is the virtual equivalent to a physical point-of-sale terminal located in most retail outlets and support a full range of processing services including authorization only, authorization and capture, refunds and voids. It encrypts sensitive information such as credit and debit card numbers, to ensure that the information passes securely between the customer and the merchant.
How it works?
Here’s a step-by-step of how payment gateways work:
- Customer places an order on the e-commerce website and clicks on Payment or equivalent button to move to the payment page
- The Customer is re-directed to the payment page to select the mode of payment, i.e. credit card, debit card, net banking etc.
- Customer enters the card number or bank account details in the payment form to initiate the payment
- The gateway collects the payment information, encrypts it and sends via a secured SSL connection to the issuing bank (buyer’s bank) for authorization
- The issuing bank either approves or decline the transaction and sends its response to the merchant’s bank
- If the transaction is approved, the bank will debit the buyer’s account and deposit funds in the merchant account at a scheduled time
- The payment gateway sends digital receipts to the merchant and the customer
What’s needed to setup a payment gateway?
- Website
It sounds rather obvious! But by website we mean a portal that not just lists products and services, but also meet the eligibility requirements for the bank to issue a merchant account. The website should contain the below listed privacy and security requirements.- Privacy Policy
- Refund Policy
- Terms & Conditions
- SSL Certificate
- Product Details
- Contact Address
- Merchant Account
A merchant account is a bank account that can be linked directly to a payment gateway. These bank accounts are issued only upon review of a website to ensure it meets privacy and security requirements. - Payment Gateway Provider
The two types of payment gateway providers are Third Party Aggregators and Direct Bank Gateways. These payment gateway providers offer the server that acts as the link between the merchant website and the payment processor. The server has a very special configuration and a very high level of security due to the sensitive nature of the data being transferred. - Payment Gateway Integrator
Once all the three requirements are met, the final step is to integrate payment gateway with the e-commerce website and to the merchant bank account to facilitate real-time payment processing. This service is usually provided by web development companies or other third parties with expertise in payment gateway integration.
How to choose the right payment gateway provider?
Here are some of the important factors to consider while choosing a payment gateway.
Third Party Aggregators or Direct Bank Gateways
One key question to consider while deciding on a payment gateway solution is whether to go for a third-party payment aggregator or use your bank’s direct payment gateway. The main advantage of using your bank’s direct payment gateway is that it allows real-time payment realisations. On the other hand, aggregators practice settlement cycle, the common practice being T + 2 wherein funds would be transferred within two working days of capture of transaction. However, aggregators come with the advantage of being the one-stop-shop with wide range of payment services and supporting almost all modes of electronic payment including net banking, credit, debit and cash cards. Some of the leading payment aggregators in India are CCAvenue, DirecPay, Citrus Payments, PayU, EBS and Pay Zippy.
Multiple card and currency support
Another important feature to consider while choosing a payment gateway is the type of credit cards and type of currencies they can process. If you plan to offer your products outside your country, make sure the service provider offers support for multiple types of credit cards, other forms of online payment and different currencies as well.
Cost Factor
If you’re a start-up company or on a budget, it’s worth looking out for a payment gateway with no sign up fee. However, if you expect large volume of transactions or need custom made advanced features, then it is advisable to opt for gateways with a setup fee, as it would prove more effective in the long run. Same is the case of transaction fees, lower the fee the better. Normally payment aggregators charge between 3-4 % from the merchant on every online transaction.
Digital Security
A good payment gateway should be able to take away the security concerns of the customers. Security features like Secure Sockets Layer (SSL), Secure Electronic Transactions, Pseudo Card Numbers and Visa 3-D Secure and MasterCard SPA/UCAF to authenticate cardholders are part of every secure payment gateway. It should also offer automated tools to help fight credit card fraud, including the capability to identify suspicious transactions. Any payment gateway provider you choose must meet PCI-compliance standards (PCI-DSS) and should use a trusted source to meet compliance standards.
In essence, a good payment gateway is an important factor that determines the success of an e-commerce portal. On one side it should take away customer’s fear of transacting online and on the other it should provide customers a smooth and streamlined buying experience. Unexpected hiccups in payment, can turn away customers with no hesitation. The easier it is to buy online, the more likely visitors are to purchase.
