E-merchants rely heavily on online card payment services to keep their businesses competitive and ensure a seamless online payment experience to their new and returning customers. Payment gateways are purpose-built to ensure both the front-end payment interface, and the intricate back-end payment processing services that allow online card payments to work like magic, bringing together the customer, the merchant and the financial providers of their choice into a three-second click-and-pay event.
If you own or are running a web shop, you must have had some contact with them, but, accurately, what are payment gateways and how do they work? Here are three common misconceptions about payment gateways that will shed some much-needed light:
Although payment gateways facilitate online payment processing, they are not banks, nor do they offer banking services. Mainly, payment gateways are interfaces between the merchant’s website and a payment processing bank, called a financial institution. There are cases when the payment gateway and the payment processor are under common ownership, smoothing out the payment processing services, but this does not fundamentally alter their nature or the nature of their relationship.
The payment gateway is the merchant’s first lines of defense against payment data leaks and financial fraud, so the gateway is responsible with verifying the merchant’s security standards compliance, and with encrypting every customer’s sensitive data, such as credit card details, to ensure that the information is transferred securely among the customer, the merchant, and the payment processor.
Basically, when the customer places an order on the merchant’s website, the payment gateway securely gathers and stores the transaction data, and then processes and forwards the request to the payment processor which, in turn, transfers the encrypted information to the customer’s card issuing bank for approval. Once the payment is confirmed by the issuing bank, the information chain is backtracked, and the merchant informs the customer, within three seconds since the order, that the transaction has been completed successfully. At no point in time does the payment gateway directly interact with the customer’s or the merchant’s money.
Payment gateways are complex financial service interfaces, performing many more online payment tasks than those depicted in this article. However, as far as common misconceptions go, avoid these three and you will gain a better understanding of how they actually work.