What Is Payment Gateway And How Does It Work?

Performing online transaction is a far more easy and comfortable way to make payments and these online transactions have become a small part of our day to day life in a very short span of time. The worldwide spread internet service has made it easy to buy and sell objects across borders. The online transactions nowadays are not only limited to debit or Credit Card Processing but also have expanded to payments methods like UPI, net banking, wallets, etc.

Apply for a Instant Approval Payment Gateway

This online transaction service is a necessary part of every business. The Merchant of a business applies for a merchant account integrating with a payment gateway.

What is Payment Gateway?

A connecting tunnel between a customer’s bank account and a merchant’s bank account is the payment gateway. It is actually a software that authorizes the online transactions through various payment methods mentioned earlier. A payment gateway acts as a third party or an agent that safely transacts the amount from the source to the designated payment portal. A PG also provides data security on the card details provided by the consumer.

How does Payment Gateway work?

Following are the basic steps that will help us understand how a Payment Gateway works.

1. From any particular website the customer places an order for an object by clicking on the checkout or buy button.

2. The order information is safely sent by the merchant to the payment gateway. The costumer selects the payment method of choice which is further directed to the customer’s bank for the authentication process.

3. After the authentication process is done the transaction is either successful or it is declined by the customer’s bank for relative reasons.

4. A relative message is sent to the merchant by the payment gateway if the money is received or not.

5. The issuing bank resolves the payment with the PG and the PG further resolves the payment with the merchant.

Low Risk vs High Risk Merchant Account

Are you a business owner and thinking of having a merchant account for online payment processing through credit/debit cards? Please go through this information before taking the next step.

There are categories of Merchant Accounts viz. High Risk Merchant Account and Low risk Merchant Account. So before you apply for merchant account you need to have proper information regarding which category your business falls in. Here we will tell you the difference between both the categories.

Apply for a Instant Approval High Risk Merchant Account

If your Business satisfies the following characteristics then you are applicable for a low risk merchant account.

Less than $20,000 is processed by you in monthly period
Very low preferably zero chargeback rate
The country that you operate from is low-risk
Average size of your ticket is less than $50
Your Operations are based in low risk industry

Following Characteristics push you in High Risk Merchant Account category:

If you are a Brand new business with no business history
High Ticket Size and chargeback ratio
Low reputation
You as the owner of the business has low credit score
Time limit of the service provided is very high

There is no need to worry in case your business comes under high risk category, you can always lower down the risk and become a Low Risk Merchant by reducing the ticket size to a lower prize and reduce the ratio of chargeback and prevent frauds in transactions.

The approval of low risk merchant account is quicker as compared to the approval to high risk merchant account.

In case you come across a financial institute offering Instant High Risk Merchant Account approval, stay alert as there no such term in Merchant Account Market.

How to Choose the Right Payment Gateway for your Online Business

Once your e-commerce website is up and running, the next most important decision is integrating a payment gateway to accept payments.

Payment Gateways are a staple for e-commerce businesses. A Secure Payment Gateway ensures customer loyalty and trustworthiness. They help streamline payments and improve your cash flow resulting in overall better cash management.

Imagine this! You are a customer shopping online. After moving all your required products to the shopping cart you proceed to pay but because of some glitch with the payment gateway, you are unable to make the necessary payment. You are bound to get frustrated after several attempts and abandon your cart.

Data shows ‘inconvenience during check-out’ as one of the most common reasons for cart abandonment. No matter how advanced and aesthetically appealing your website is, if your customers experience difficulty trying to pay for a product, you will lose sales. The right payment gateway will ensure low percentage of cart abandonment.

While there are multiple top-rated payment gateway providers, a secure payment gateway that suits your business requirements is what you should look for.

To make a well-informed decision, go through these few points while doing your research for the perfect payment gateway provider for your business:

Pricing – Payment gateways usually either charge a monthly processing or a per-transaction fee. Some may charge only one of the above or sometimes both. Choose a payment gateway that charges reasonably and prefer those with per-transaction fees rather than a monthly amount.

Some processors offer gateway integration with no initial set-up fees but they may also charge higher processing fees.

Study the pricing structures of potential payment gateway providers and choose the one suited most for your business.

Hosted vs. Integrated Payment Gateway – A hosted payment gateway will take your customer to the processor’s website to make the final payment, whereas with an integrated payment gateway the customer does not have to leave your website.

Hosted gateways tend to lengthen the process and in case of any glitch or error the customer may not want to go through it again. In contrast, an integrated gateway ensures a short and smooth process hence it is a preferred choice with businesses.

Secure Payment Gateway – Customers are wary of giving out their card details but a secure payment gateway ensures protection from data security risks and frauds. An important feature of a secure payment gateway is that it should be PCI-DSS compliant.

Also, ensure that your processor has Fraud Prevention Tools in place for security against any financial risk and frauds.

Mobile Payments – Mobile shopping is rampant in this day and age. A good payment processor should work seamlessly no matter the type of device used to make the payment.

Processing Volume – Some processors set an upper limit of monthly transaction processing. Your processing volume will not be a problem if you are a small business with limited monthly transactions. However, if your business processes a large number of transactions, be sure to notify the same to the payment gateway provider.

High Risk Payment Gateway – There are certain industries that are labeled as High risk by payment processors. Industries namely online gaming, Gambling, Online Pharmaceuticals, Credit Repair, Forex, Dating websites, etc. fall under this category.

If you operate one of the above businesses, you will find it difficult to obtain a payment gateway from a regular processor. In this case, look for processors who specialize in High Risk Payment Gateway.

International payment gateway – You may only be selling locally now but if you ever decide to expand your audience, you will need a different payment gateway that is able to process international payments. A local payment processor will work if your audience is local only. But going global will require an International Payment Gateway. This gateway may come with higher fees but also has additional features such as multi-currency support, multiple language interface, alternative payment options, etc.

Customer support – An efficient, 24*7 Customer Support ensures you are not left grappling for answers when the payment gateway experiences any technical glitches. A gateway should always have an account manager assigned who is present to answer your queries and resolve any issues swiftly.

Review the payment process – Go through each and every step of the payment process that a potential secure payment gateway will offer. Experience it as a customer and look for the different features and benefits that it can offer. Also, note down any inconvenience that may occur during the process. This will give you a fair idea of how efficient and effective the payment gateway will be once integrated with your website and will help in making a well-informed decision.

Do your own research as well as ask for recommendations. When you have finally narrowed down your list of potential payment gateway providers, weigh the pros and cons of each processor and make a final decision based on the payment gateway that will suit your business model the best.