How Payment Gateways Work and Integrate with E-Commerce
Most business owners find payment gateways confusing as well as useless. But when you do come to understand it’s value, you come to understand the reason behind why big companies seem to love utilizing such resources, as well as the origins of such a booming and secure e-commerce industry. They can be used for online transactions across several mediums, such as brick and clicks, brick and mortars, e-businesses, or even online retailers.
To explain this value, let’s understand the history of e-commerce. In 1990 the world wide web was first introduced to the world by Tim Berners-Lee, later commercialized in 1991. In 1994 more commercial checkpoints like an online pizza hut website came to be. With the invention of SSL, a secure socket layer, in the same year, online transactions were suddenly possible, with Amazon launching the year after that.
A payment gateway, utilizes this SSL technology, to securely bridge the gap between bank and website. It’s a terminal for sensitive information, encrypting it with SSL, only to pass the information on to a processor situated in the perceived bank for decryption. So, it’s proper place during your credit card transaction process would be right in the middle, between website and the bank, in exactly the area you never thought of before. Therefore, as the name suggests, it’s simply a gateway.
To understand it’s place in the e-commerce process more efficiently, let’s highlight a hypothetical online transaction.
- A customer looking for a new T-shirt goes to a website he’d heard about, that sold the exact plain tees he’d seen in a particular movie.
- Once he’s on the website, he scrolls to find the T-shirt he wanted. He’s redirected to a page displaying a price as well as a size section.
- Once he’s added all this information, he’s redirected to a page on the website that requires him to fill in his credit card or debit card information.
- After he clicks on the button tagged ‘Submit’, he sees a seen displaying a loading sign. While he waits, this information is first sent to the payment gateway.
- At the payment gateway, this information is encrypted and re-directed to the payment processor of the customer’s bank.
- The processor checks the account of said customer, specifically if he has enough funds to purchase the T-shirt.
- If he does, the bank provides the processor with a response code that includes the accepted reasoning as well.
- The processor then forwards this code to the payment gateway.
- Here’s its encrypted again, and sent across to the web browser.
- Having waited only for a few seconds, throughout this process, the customer’s screen now shows a ‘Payment Successful’ sign.
Additionally, the payment gateway is accessed again as a means to present the transaction information to the merchant, while relaying the deposit information across as well.
- Once the transaction has finished for the customer, the merchant’s own transaction can be taken care of through a payment gateway as well. The information of a day’s worth of transactions is encrypted through the gateway, onwards to the payment processor and eventually the bank.
- As a batch, the payment gateway sends this information daily.
- Once the funds are settled, it takes around two business days to be electronically deposited into the business account of the merchant.
- Normally the payment gateway also processes reports of the transaction to the merchant. These can be downloaded, reviewed, or even printed.
Their exact value to the e-commerce process can be referred to additional features.
- It’s the most common way for business owners to connect with payment systems, with multinational businesses alone connecting to the acquiring bank directly.
- The transactions that are required to be paid for the use of a payment gateway is adequate enough for the large benefits that are provided by utilizing its services, specifically its secure transactional process.
- The payment gateway provides a varied reporting system, that can be customized to the needs of the merchant
Payment methods of varying degrees can be accessed by good payment gateways, that are normally too varied for the merchant alone to access, such as different currencies.
To conclude, payment gateways are an essential part of the e-commerce process. Do let us know what you thought of our article in the comment section below.