What is a payment gateway?

Payment gateways are essential for seamless transactions and choosing the right one can drive your business’ growth. 

Within this guide, you’ll discover:

• What is a payment gateway?
• How do online payment gateways work?
• Why choosing the right payment gateway matters.
• Security features to consider.
• Selecting the best gateway for your business.

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What is an online payment gateway?

An online payment gateway is the technology that helps you process online payments. When a customer initiates a payment, the online gateway is the technology that sits between your website or app and your acquirer. The gateway securely encrypts the customer’s card data before it’s transmitted to other players in the payment chain to process the transaction. 

Your choice of payment gateway will help to determine the currencies, payment methods and fraud tools you can offer (this will also be impacted by your choice of acquirer, but we'll cover that another time). Consumers nowadays expect online payments to be secure and easy to use, so it’s vital you choose a gateway that reflects your business and customer needs. 

Overall, the payment gateway acts as a safe virtual bridge between your website or mobile app and the acquirer, allowing you to accept customer payments via various methods such as credit cards, debit cards etc. 

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How do online payment gateways work?

An online payment involves multiple steps to ensure a smooth and secure transaction, including dozens of checks and actions by various different players (all within a few milliseconds). We've broken the process down, highlighting the key steps below:

1. The checkout page. 

When customers are ready to pay for your products or services on your website or mobile app, they'll head to the checkout page. Companies can use a variety of different payment methods, but the more convenient and user-friendly they are, the better. The payment process can vary slightly depending on the payment method being used, but the first step most commonly involves the customer entering their card details on the checkout page.

2. Data is encrypted. 

The payment gateway uses data encryption to ensure the security of sensitive information like card details etc. The encryption scrambles the customer’s data making it unreadable to unauthorised individuals. 

3. Data is transmitted. 

After performing some additional security checks, the gateway then sends the encrypted data to the acquirer. The acquirer then sends information on to the relevant card scheme (e.g. VISA, Mastercard etc.) who carry out additional fraud checks. The card scheme then transmits data to the customer’s issuing bank to request authorisation for the payment. 

4. Authorisation.

The issuing bank needs to perform some more checks, such as confirming the transaction data, ensuring that the bank account is valid, checking if the cardholder has enough funds in their account etc. before it can approve the payment. 

The acquirer sends the approved or declined message to the payment gateway, before it’s transmitted to the merchant. The merchant can then display a purchase complete page or ask the consumer to use a different payment method (if the payment was declined).   

5. Settlement.

If a payment is approved, the acquirer will then collect the amount and settle it into the merchant’s account. The amount of time this takes depends on the agreement between the merchant and the PSP. 

All of these steps (apart from Step 5 as described) take just a few seconds in real time. 

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Upgrade your customers’ payment experience. A seamless payment process will ensure a positive relationship between you and your customers. The benefit of choosing the right payment gateway is that it will increase security for you and your customers, and offer greater flexibility. Looking to upgrade your payment gateway? Learn more >

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Why choosing the right payment gateway matters.

Offering the highest level of customer care is essential. The correct payment experience can enhance essential parts of the customer experience, like convenience, dependability, and speed. Some of the features online payment gateways provide are:

Multiple payment options.

While paying by debit and credit cards are the most common online payment options, the availability of alternative payment methods like Buy Now Pay Later are all determined by the payment gateway you choose. Offering the range of payment methods that your customers expect is vital. Be sure to check that your choice of gateway aligns with the payment methods your customers want, as well as any future payment methods you may need to launch.

Secure and reliable payments.

Security is a significant issue in e-commerce for both organisations and consumers. According to research, in 2017, a 2.5 billion dollar loss was facilitated by credit card fraud. Payment gateways use strong security techniques to protect sensitive payment data, including encryption and tokenisation. By minimising the threat of fraud, you're safeguarding your company's and customer's finances as well as your business reputation.

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Security features to consider. 

With the drastic growth of online fraud - amounting to almost 50 billion in 2023 - payment security has become all the more important. Payment gateways not only protect confidential data, but work to fight fraud as well. They incorporate various security measures that create a secure environment during transactions. Some of these security traits are listed below.

Use of tokens. 

Tokens are specialised identification symbols used by payment gateways. They’re used to replace sensitive data, keeping the information secure. Tokenisation not only helps to increase overall credibility, it guards against storing and transmitting confidential data in its original form.

Ensuring compliance. 

A standard was developed by credit card firms to protect cardholder information. It was named the “Payment Card Industry Data Protection Standard” (PCI DSS). Your payment gateway must be PCI DSS compliant. This helps to provide a secure environment for processing card transactions. It also calls for deploying safety controls, regular system checks, and vulnerability scans. 

Network structure. 

Strong network infrastructure is used by gateways to protect against unauthorised access and online threats. Regular system updates, vulnerability analyses, and security audits are carried out to make sure the infrastructure is safe and secure from any threats.

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Selecting the best payment gateway for your business. 

It’s important to consider certain factors when selecting the best payment platform for your business, such as:

• ‍Cost-effectiveness. Compare transaction fees between platforms before making a decision. Consider setup charges, per-transaction fees, and other costs associated with particular payment methods.
• User experience. Make sure the gateway interfaces well with your existing platform, website or app. Compatibility issues could lead to technical problems and a poor user experience.
• Customer service. We know how important customer satisfaction is, so solid customer support is a necessity. This becomes even more important if you experience technical difficulties or need assistance integrating a payment method. Select service providers who offer email and phone support.
• Security. Give priority to payment gateways that follow industry standards and promote their focus on continually reviewing and improving their security protocols.

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Conclusion

Online stores allow businesses to reach a much wider, global audience. Consumers can order grocery shops, takeaways or even Christmas gifts, all from the comfort of their sofas. For that, you need to provide them with a seamless payment experience. If not, you’ll lose them at the checkout, and all of your marketing and web or app design efforts will be in vain. 

At Judopay, we streamline payments for mobile, web and in-app, supporting your overall customer experience. Ready to get started? Get in touch.