A Business Owner’s Guide to Payment Gateway Process

If your business sells products or services online, you need to find a great payment gateway. A payment gateway is a system that accepts digital payments from your customers and sends them to your business.

So how does the payment gateway process work?

This guide will show you how it works and how to decide upon a payment gateway for your business.

Let’s start with the basic functions.

1. The Basic Functions

The basic functions of a payment gateway are to authorize a digital payment. Once the payment gets authorized, the payment gateway will encrypt the payment.

This means that it will mask the payment information from the seller and from any potential hackers. The encryption process hides credit card numbers, bank account numbers, etc.

The customer will receive a notification informing them whether the payment was accepted or rejected.

Next, let’s look at the security in the payment gateway process:

2. How Secure Are My Transactions?

One concern that troubles buyers and sellers alike is the security of a payment gateway. Due to the sensitive nature of making payments online, all payment gateway services have to adhere to the guidelines set by the PCI Security Standards Council.

When a buyer makes their payment, they should see an HTTPS in their browser’s URL bar. This helps communicate the information from buyer to merchant in a secure fashion.

You want to make sure that you research the security of a payment gateway. You should consult with a payment gateway before processing online payments to learn about their security protocol.

Next, let’s look at the actual payment gateway process between buyer and seller.

3. The Payment Gateway Process

When a buyer finds a product/service on your website, they add it to their cart and then start the checkout process. In the checkout process, they will enter their payment information. This will usually be a credit card number or a bank account number.

Once they click ‘Purchase’ they submit their order. Their web browser will encrypt the payment information and send it to the merchant’s web server. It’s then sent to the payment gateway.

The payment gateway collects the customer’s information (including credit card/bank information) and stores it with encryption.

Once this information gets collected, it gets sent for bank authorization.

4. Bank Authorization

Once the payment gateway encrypts and scrutinizes the payment information, it must then seek bank authorization. The payment gateway will send the payment information to the merchant’s bank.

When the merchant’s bank scrutinizes this information, they will then send the information to the credit card company. The credit card company will either confirm or reject the payment credentials.

If they reject it, it will be because the payment credentials are incorrect. Alternatively, it can be rejected if the customer doesn’t have sufficient funds for the payment.

For example, if the customer only has $1,000 of available credit and purchases a product/service of $2,000 their payment will get rejected. Often, the reasons for rejection get conveyed to the merchant and the buyer.

This process usually takes a few seconds. If the payment gets authorized, then the customer’s bank pays the merchant. This also takes a few seconds. Both the buyer and seller get a notification.

Now, what do you need to know to help you choose a payment gateway? There are several criteria, starting with payment options.

5. Payment Options

To increase your chances of getting as many sales and customers as you can, you want a diverse selection of payment options. For example, you should allow them to use as many different credit card options as possible.

Most payment gateway services will offer MasterCard and Visa as an option. But you also want to see if you can use a payment gateway service that allows other cards. These can include American Express, Diners Club, Discover, and international cards.

You also want to give your customers an option of paying through their bank, such as with an eCheck. You might also want to consider letting your customers pay for your products/services through cryptocurrencies such as Bitcoin.

6. Jurisdiction Options

Next, you want to consider a payment gateway that has a plethora of jurisdiction options. What this means is that it allows payments from as many countries and territories as possible.

If you want to reach the highest number of customers possible, you want to think internationally. You want to make sure that your payment gateway can accommodate customers outside of your jurisdiction. You also want to consider where your business is incorporated. Verify if the payment gateway works in this jurisdiction.

Part of jurisdiction options is to see what currencies are accepted by your payment gateway. Most payment gateways charge a commission fee. They might also charge a separate commission fee for foreign currencies.

For example, if you are a U.S. business and you receive a payment in U.S. Dollars, you might get a 2% commission fee charged. If, however, you receive a payment in British Pounds, some payment gateways might charge a higher commission fee.

You want to choose a payment gateway that has low commission fees.

7. Integrations

A great payment gateway has a variety of integrations. For example, PayPal became popular when it was the preferred payment method for eBay. Stripe has achieved popularity because it integrates with many services from Payhip to Buy Me A Coffee.

For your business, consider a payment gateway that you can use with third-party websites. For example, if you sell ebooks you might want to use Payhip and Gumroad to store and sell your ebooks. You want to check what payment methods work with such services.

If you want to sell directly from your websites, integrations aren’t that important. You do want to consider them, however, in case you want to diversify your marketplace.

Choose Your Payment Gateway

Now that you know the payment gateway process and the criteria for a payment gateway, you can choose the right one for your business. Make sure to share this guide with other entrepreneurs and business owners.

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