Digital payments – the go-to choice for everyone these days, right? According to the latest digital payments data from McKinsey & Co in the US (2022), a whopping 89% of Americans are using digital payments.
This ongoing trend of omnichannel adoption indicates a steady growth trajectory, despite a temporary decline from the record-breaking 58 percent observed in 2020.
Especially, the fluctuations in digital payment usage during 2020 and 2021 can be attributed to the transformative effects of the COVID-19 pandemic. This increase can potentially be attributed to the behavioral changes induced by the pandemic, such as:
- Increased time spent at home
- Reliance on online shopping for daily essentials
- Preference for contactless payment methods to avoid physical contact
Furthermore, as more individuals and businesses shift towards digital transactions, it is expected that online payments will continue to dominate the digital payments landscape.
And that’s what Statista’s report says- the Digital Payments market is projected to exhibit an annual growth rate (CAGR 2023-2027) of 11.80%, resulting in a staggering total transaction value of US$14.78 trillion by 2027.
Undoubtedly, which is why, in this cashless age, payment gateways are crucial. But what exactly is a payment gateway, and how does its integration simplify online transactions for businesses?
Let’s get the answer below-
What is a Payment Gateway?
Payment gateways play an important role as vital technological interfaces, empowering merchants to actively accept debit or credit card payments from their valued customers. These gateways seamlessly operate across both physical brick-and-mortar stores and dynamic online platforms- be it a website or an app.
- Within physical stores, payment gateways take the form of cutting-edge point-of-sale (POS) terminals, actively facilitating the acceptance of card details, whether through conventional physical cards or modern smartphone devices.
- When it comes to making payments using mobile devices, physical payment terminals rely on either QR codes or Near Field Communication (NFC) technology.
- On the other hand, when shopping online, payment gateway solutions serve as the “checkout” stations where customers input their card details or other necessary credentials for accessing services.
Before diving into the benefits of payment gateway integration for online transactions, it’s essential to have a clear understanding of their functionality and the various choices available. Let’s take a closer look and get a better grasp of how they operate.
How Does Payment Gateway Work?
To properly understand the functioning of payment gateways, it’s crucial to have knowledge about the significant players involved, including:
- The Merchant: This refers to the individual or business entity that is making the sale.
- The Cardholder: This is the customer who is initiating the purchase.
- The Issuing Bank: It is the financial institution that holds the account of the cardholder, which can be either a credit card account or a checking account connected to a debit card.
- The Card Schemes: These are the credit cards companies such as Mastercard, Visa, or American Express that manage the cards.
- The Acquiring Bank: This refers to the financial institution that holds the account of the merchant.
Now, let’s jump to the answer for how Payment Gateway operates:
Step 1: Customer initiates the transaction by entering their card details on the merchant’s website. The merchant can utilize either a hosted or self-hosted Payment Gateway, providing flexibility in their setup.
Step 2: The Payment Gateway takes the entered payment details, such as card numbers, CVV, VPA in UPI, etc., and employs advanced encryption and tokenization techniques to secure the sensitive information.
Step 3: Next, the Payment Gateway forwards the encrypted payment data to the Acquiring Bank via a payment processor. This step ensures that the transaction information reaches the relevant financial institution responsible for processing the payment.
Step 4: The Acquiring Bank then transfers the payment details to the card networks like Visa, American Express, Mastercard, etc. These card networks conduct fraud checks to ensure the transaction’s authenticity and pass the information to the Issuing Bank.
Step 5: The Issuing Bank, in turn, verifies the payment authorization and checks the availability of funds in the customer’s account. If there are sufficient funds, the Issuing Bank provides a positive response to the card networks.
Step 6: The card networks relay the approval message back to the Acquiring Bank through the Payment Gateway, completing the payment transaction loop.
Step 7: Finally, the Payment Gateway shares the payment status with both the merchant and the customer, providing real-time updates on the transaction’s outcome.
When the payment has been approved, the Acquiring Bank does not wait for the Issuing Bank to release the funds. The received funds are then settled by the Payment Aggregator with the merchant, following the agreed-upon settlement terms, which could be either instant or as per a standard timeline.
Using the infographics below, you can better understand this streamlined process:
Types of Payment Gateway Integration
Here are four different payment gateway options. Take a look at each one to determine which would be the best fit for your business needs.
|Payment Gateway Type||Description||Examples|
|Hosted payment gateway||Customer is redirected to a separate payment page provided by the host or payment service provider (PSP) and then redirected back to the website after payment completion.||PayPal|
|Self-hosted payment gateway||Customer payment details are collected directly on the merchant website and then encrypted and submitted to a third-party payment gateway for authorization.||Shopify, Stripe|
|API-hosted payment gateway||Payment details and processing are handled directly on the merchant website using an API. Offers a fully customizable checkout experience.||Custom integration with an API|
|Local bank integration gateway||Customer is redirected to the merchant’s website for payment and contact information input and then redirected back after payment clearance.||Local banks or regional payment providers|
Benefits of Payment Gateway Integration for Businesses
1: Enhancing Convenience for Seamless Shopping
Payment gateway integration revolutionizes online transactions by providing businesses with the ability to offer 24/7 purchasing convenience to their customers.
Regardless of whether the business is actively operating or not, customers can indulge in shopping at their leisure, enjoying the flexibility to make purchases anytime and anywhere. This effortless accessibility adds a remarkable level of convenience for both businesses and customers, fostering a positive shopping experience.
2: Accelerating Payments with Instant Transaction Fulfillment
In the realm of payment processing, businesses often encounter the challenges of delayed payments or the hassle of setting specific payment dates. However, with payment gateway integration, these issues become a thing of the past.
Customers can now make instant payments, ensuring swift and seamless transaction fulfillment. By eliminating the need for agreement on payment dates and the potential forgetfulness that follows, businesses can experience faster and more efficient payment cycles, propelling their financial growth.
3: Safeguarding Transactions with Robust Security Measures
Concerns regarding the security of online transactions loom large in the minds of customers. Payment gateway integration addresses these concerns head-on by implementing stringent security measures. Through secure transmission protocols, customer card information remains protected, and accessible only to the customer and their issuing bank.
Compliance with the rigorous Payment Card Industry Data Security Standard (PCI DSS) ensures that customers’ card details are processed with the utmost security. Additionally, the integration of the 3-D Secure protocol adds an extra layer of protection, requiring customers to create unique passwords for each card used in online transactions.
4: Elevating Trust and Confidence in Online Commerce
By integrating payment gateways into their operations, businesses establish themselves as trustworthy and reliable entities in the world of e-commerce. The seamless payment process offered by these gateways not only streamlines transactions but also instills confidence in customers.
They feel secure knowing that their financial information is safeguarded, which encourages repeat purchases and fosters customer loyalty. The enhanced trust and confidence resulting from payment gateway integration contribute to the growth and success of businesses in the competitive online marketplace.
5: Embracing Efficiency for Business Growth
Payment gateway integration is a catalyst for efficiency, propelling businesses toward growth and success. The convenience it offers ensures that businesses are not bound by operating hours, allowing customers to shop at their convenience. The swift payment processing accelerates cash flow, enabling businesses to maintain a healthy financial position.
Moreover, the robust security measures provided by payment gateways alleviate customer concerns and establish businesses as reliable and secure entities, fostering customer loyalty. Overall, payment gateway integration optimizes the transaction process, driving efficiency, customer satisfaction, and ultimately, the growth of businesses.
How To Choose the Right Payment Gateway Provider for Your Business?
Choosing the best payment gateway for your business is crucial when it comes to accepting online credit card payments. This technology facilitates the secure transfer of financial data, ensuring that payments are authorized and funds are transferred from customers to merchants.
To make an informed decision, it’s essential to consider various factors such as pricing and fees, integrations, security, and more.
- Pricing & Fees:
Payment gateways entail subscription fees and payment processing fees. Subscription fees are monthly charges, while payment processing fees are levied per transaction. While some gateways don’t have a monthly fee but charge higher transaction fees, others follow the opposite approach.
Typically, subscription fees range from $25 to $50 per month, while payment processing fees hover around -2.9% + $0.30 for US transactions, and 3.9% plus a standard fee for international payments. Deviations from these parameters often indicate variations in the features offered.
When evaluating pricing, it’s essential to consider the following:
- Does the payment gateway offer a pricing plan that fits your business needs and budget?
- Are there any hidden fees or charges that may affect your profitability?
- How does the payment gateway’s pricing compare to other providers in the market?
- Does the payment gateway offer volume discounts or special pricing for high-volume businesses?
- Does the payment gateway providers offer a free trial?
- What refund policy do they have?
- Integrations & Customizations:
A suitable payment gateway solution should seamlessly integrate with your accounting software, shopping cart, and other relevant business applications. This integration enables streamlined accounting and saves time.
Additionally, consider whether the payment gateway allows for customization options. For instance, you might want to incorporate your logo or modify the payment page’s color scheme. API-based solutions often facilitate these customizations, although not all gateways provide this flexibility.
Prioritize security when selecting a payment gateway. Ensure that the gateway employs the latest encryption technology to safeguard customers’ credit card information against potential theft.
Moreover, verify that the payment gateway is PCI-compliant. This certification indicates adherence to the Payment Card Industry Data Security Standard (PCI DSS), a set of security standards mandatory for businesses involved in credit card payment processing.
- Payment Methods:
Consider the supported payment methods offered by the chosen gateway. Apart from credit cards, you may want to accept payments through popular payment gateway providers like PayPal, Stripe, and Square or even offer customers the option to pay via invoice.
- Check Transaction Limits
It is a crucial factor to consider when selecting one of the best payment gateway providers, as they can greatly impact your ability to conduct business efficiently. Take, for instance, the prominent player in the field, Stripe.
With a minimum transaction limit of $0.50 and a generous maximum limit of $999,999.99, Moreover, it is important to pay attention to the daily or monthly transaction limits set by payment gateway providers.
- Consider mobile payments
Mobile payments, such as Google Pay, Apple Pay, and Amazon Pay, offer a distinct method for accessing credit card funds. They employ their own tokenization process and are integrated separately into payment gateway services.
The availability of mobile wallets varies by country, but these three major applications support all major credit card networks and operate in numerous countries worldwide. To determine compatibility with mobile wallets, it is necessary to visit the provider’s website and review the relevant information.
How iWebServices Help You With Payment API Integration?
At iWebServices, our experienced team specializes in API development and integration, providing comprehensive solutions for payment API integration.
With our expertise, we can assist you in smoothly incorporating payment APIs into your systems.
Whether you require integration with popular payment gateways or customized solutions tailored to your specific needs, our team is equipped to deliver efficient and secure payment processing.
Our API development and integration team possesses deep knowledge and understanding of various payment gateway APIs, ensuring seamless integration with your existing systems.
We prioritize delivering high-quality, scalable, and reliable solutions that enable you to optimize your payment operations.
With iWebServices as your partner, you can benefit from our expertise in payment API integration, allowing you to focus on your core business while we handle the technical aspects. Choose us for seamless payment API integration and unlock the potential of efficient, secure, and user-friendly payment processing for your business
Q. What is online payment gateway integration?
Ans: Online payment gateway integration can be defined as a process of connecting your digital assets-be it a website or app to a payment processor. Some of the popular payment gateway providers like Paypal, Stripe, etc. offer this service, letting your customers pay for goods or services online securely.
Q. How to integrate a payment gateway integration?
Ans: To integrate a payment gateway, you will need to create an account with a payment processor and obtain the necessary API keys. You will then need to integrate the API into your website or app.
This process can be complex, so it is important to follow the instructions provided by the payment gateway service provider or hire technical experts to do the job for you.
Q. What does a payment gateway do for a business?
Ans: A payment gateway allows businesses to accept online payments from customers. It acts as a bridge between the merchant’s website and the customer’s bank, securely transferring payment information. This process is essential for businesses that want to accept online payments, as it protects both the merchant and the customer.