All about Payment Gateway

Understand what is a payment gateway and how the process works behind an online transaction.

Defining Payment Gateway

E-commerce has become an important part of the retailing industry, responsible for almost 10% of total retail sales, according to eMarketer, and the number keeps growing. Brazil is the most important e-commerce market within Latin America and one of the fastest-growing worldwide. A sophisticated payment system is imperative and in emerging tech regions like Brazil, the payment gateway is the key to successful, easy transaction.

There are many entities when it comes to completing a payment online. Perhaps the most recognized is the payment gateway, linking the customer to the merchant. A bunch of gateways exists, in many forms, and all play an important part in the ecommerce economy. In any online purchase, the payment gateway is required to make it happen. Without it, the transactions cannot be completed.

There are many payment gateway providers, and the best way to choose one is to first understand what is a payment gateway what it does for buyers and merchants, then analyze your options considering the offered security features along with good customer experience. So first, the basics.

What is a Payment Gateway?

A payment gateway is a mechanism behind credit card transactions between a merchant and their customers. In other words, is what assures security and facility sending credit card information from the merchant's website to the payment processor, and returning transactions details and its response back to the customer.

Within a few seconds, the payment gateway will be responsible for encryption, request, fulfillment, calculating tax costs, screening orders, and using geolocation to provide a better experience to the customer. To simplify: think of it as a "cash register" in an electronic transaction.

Among popular payment gateways, you will find PayPal all around the world, Braintree or Stripe for North America and Europe, and EBANX for Latin America, for example.

Payment Gateway vs. Payment Processor vs. Payment Methods

You've probably heard a payment gateway as a payment processor, but they are different and both could be used in the transaction. While the payment gateway authorizes or not the transaction, the processor only transmits it according to the payment method selected.

Online payment requires many steps in order to process a transaction. These steps happen in the background in a few seconds and may seem confusing.

Let's enlighten each one understanding the difference between a payment gateway, a payment processor, and a payment method:

Payment methods

The method by which a payment is made. These are credit cards, debit cards, ACH transactions, e-wallet transactions, bitcoin, and on. Buyers choose their favorite payment method for the item at hand.

Payment gateway

A payment gateway is a technical backend service processing payments in online transactions. It acts as an interface between the payment processor, the merchant, and the acquiring bank, besides informing the customer about their purchase's status.

Payment processor

Is the entity that will facilitate the entire process, this service can include the gateway, the intermediation with all the players, the payment processing and also the money collection. The payment processor is also responsible for depositing that money into the seller’s account.  

Transactions and Payment Gateway Process

The process of online transactions is a very fast, very accurate, electronic exchange. During this exchange, money is protected, safeguarded, and transferred. Everything happens as fast as a confirmation page loads.

How a Payment Gateway Works

The payment gateway works by giving the customer a way to buy online. This is necessary since there is no physical interaction between seller and buyer, which in the physical purchase, a person would require a cash register or a credit card machine. Instead, the gateway acts as the tender retrieval, like a cash register. It takes in the payment information electronically so that it can be sent to the seller. The best payment gateway systems are fast, secure, and easy to use.

Steps of a Transaction and the Players

The transaction steps for payment gateway are simple. When a party enters the payment portal, they are entering the gateway. As the first part of the payment process, the customer enters their payment information such as credit card, debit card, or their bank account. The payment system will then process and authorize the payment, which will be sent to the payment processor, the entity that carries the money into the seller’s account.

Example of a Transaction

Molly
American working in Sao Paulo
  1. 1Molly is an American and she has a new job in Sao Paulo, and in order to be better prepared, she needs to take a class online.
  2. 2To do this, she finds the course she wants online, and adds it to the cart. The screen takes her to a shopping portal, where she can complete her transaction. This portal is the payment gateway to buy into Brazil.
  3. 3She's prompted for her address, credit card information, and then clicks "submit."
  4. 4Now Molly has completed the action on her end, with her purchasing information now entered into the payment gateway.
  5. 5Next, her information will be passed on to the payment processor, which will then deposit the funds into her online school’s bank account.

Are Payment Gateways Safe?

Payment gateways cannot be ignored when everything we do is online. However, is no longer unusual for merchants and customers to have questions about their safety. The answer is: payment gateways are safe and secure, they just have to be configured and managed properly.

If you are looking for a payment gateway, search for the one that offers encryption (protecting customer's sensitive data), digital signatures to help decrease fraudulent transactions, PCI compliant certification, tokenization to replace sensitive information, 3D secure as an additional layer offering more security to customers with a validation process, and other technologies that may help protect all personal information from outside sources.

Card Tokenization

Buyers are concerned with financial security when they make online purchases. To ensure a safer transaction, card tokenization replaces a buyer’s credit card number with a random string of characters called token, protecting their sensitive information.

This affiliation means card numbers are secure in online transactions and the chance of a data breach is significantly reduced. Even if a token is stolen, the fraudster won't be able to use it.  It's important to mention that if a buyer makes multiple purchases with different credit cards, each purchase gets a new card token.

3D secure

Created by Visa and MasterCard, 3D secure - as known as payer authentication - is a technical standard that adds a layer of security in online credit and debit card transactions. Within its benefits, we can consider: reduce fraudulent transactions, less chance of chargeback, offer more protection, increasing customer confidence to buy online.

PCI Compliant certification

The Payment Card Industry Data Security Standard (PCI DSS) is an essential proof of security for all organizations that accept, store, process, and transmit cardholder data in a transaction process. When you choose a Payment Gateway, make sure that your provider is PCI compliant assuring more security to your business and customers.