Understanding Payment Gateways

AP/AR Invoicing

ByRemoteWork360

What is a Payment Gateway?

The integration of payment gateway has become one of the most significant aspects of any business in every industry. It plays a pivotal role in the eCommerce business, as it is the final step of the sales process. A payment gateway is a software application that payment service providers (PSP), also known as payment processors, use to process payments for online purchases. It acts as an interface between the merchant’s website and a payment processing bank, also known as the acquirer bank. It can be used for many types of payment transactions such as credit/debit card payments as well as card-not-present transactions. It is responsible for the secure transaction from the customer’s preferred bank to the merchant’s payment portal. According to the report by MarketWatch, the payment gateway market was valued at USD 17.2 billion in 2019 and is expected to reach USD 42.9 billion by 2025.

Payment Processors

Payment processors, also known as payment service providers (PSP), are the financial institutions that work in the background to provide all the payment processing services used by an online merchant. It connects to both the merchant account and payment gateway, quickly passing information back and forth, keeping it secure and almost instantaneous for the end-user. Each payment service provider (PSP) uses special software to process, store, and analyze the merchant’s transactions. It serves as a mediator between a cardholder, a merchant, an acquiring bank, a payment gateway, and an issuing bank.

How It Works

Although the transaction process takes only a few seconds, several steps are accomplished in the back-end during that brief window of time. Every transaction that takes place between the merchant and the issuing bank is encrypted to protect sensitive financial information. Once the customer is prompted to a secure payment page and places an order, the transaction data including credit card number, CCV2 information, etc. is encrypted and sent to the payment processor through the gateway. The payment processor interacts with the credit card’s issuing bank and retrieves feedback in the form of an approval or a declined message. The response is then transmitted to the payment gateway, which communicates it to the website. Finally, the information is interpreted and an appropriate response is generated. If the transaction was approved, the merchant fulfills the order.

Leading Payment Gateways

Each payment gateways functions in a different manner than the other. Google Pay, Amazon Pay, Payflow, and 2Checkout are some of the top payment gateways available in the market. Fees, currencies support, recurring billing and integration, and customer support are some important aspects that one should keep in mind while opting for the online payment software.

Google Pay

Google Pay is an online payment system and digital wallet platform developed by Google that allows users to make payments with Android phones, tablets, or watches. It allows users to pay with one touch by adding the card details once.
It protects user’s money with a world-class security system that helps detect fraud and prevents hacking. User can safeguard their account with fingerprints.
It allows merchants to use their payment gateway APIs to manage recurring billing. It charges no fees to use debit cards or make bank transfers, though the merchant will have to pay a 2.9% fee for credit cards.
According to a case study conducted in India, over 50% of the riders switching to Google Pay used cash predominantly as a payment method in the past. In 2019, 12.1 million users in the United States had used Google Pay whereas in India the number reached 67 million monthly active users.

Amazon Pay

Amazon Pay is an online payment processing solution launched by Amazon in 2007. It allows Amazon customers as well as others to make payments for goods, services, and donations on Amazon platform and third-party websites.
It charges 2.9% on domestic transactions with an additional $0.30 per transaction and 3.9% plus $0.30 for cross-border transactions.
It has a recurring payment widget that enables a user to agree to be charged on a recurring basis for a subscription or recurring bill.
According to a report by Evercore ISI, Amazon Pay had 50 million active users in 2018.

Payflow

Payflow is internally used as a payment gateway by PayPal and supports all prominent credit cards: Visa, Mastercard, Citibank, American Express, and more. PayPal is the most commonly used payment processor for eCommerce stores and an accepted payment gateway in over 203 countries.
It monitors transactions 24/7 to detect fraudulent activities.
It requires clients/merchants to pay processing fees of 2.9% with an additional $0.30 per transaction.
There were 325 million active PayPal accounts worldwide in the first quarter of 2020, representing a growth of 17 percent year-on-year.

2Checkout

2Checkout payment gateway was developed by the company called 2Checkout which is the digital commerce and payments provider that helps companies to sell their products and services through multiple channels. It was established in 1999 and has been in business for 21 years.
It provides a multi-tier defense strategy to identify fraudulent activity and prevent fraud impacting its operations. 2checkout uses a combination of artificial intelligence and manual review processes to make sure that the fraud-detection mechanisms are optimized, keeping fraud to a minimum.
It offers services in 196 countries and accepts payments in credit cards, debit cards, and PayPal. The fee structure 2Checkout payment gateway is 2.9% + 30¢ per successful transaction.

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