What is a Payment Gateway? A Beginner’s Guide
What is a payment gateway? It’s the technology that facilitates the accepting of payments to merchants and retailers from their customers. An end-to-end payment gateway includes the payment processing side of a transaction. And an omnichannel payment gateway gives merchants and retailers many ways to pay (in-store and online) and from multiple payment methods (including credit cards, debit cards, digital wallets, and global currencies).
A Payment Gateway kicks off a sale.
A customer presenting their method of payment is the action that opens the gateway door. This action is triggered when a customer uses your Point-of-Sale (POS) Machine, enters their payment information into your website or scans a QR code you created.
Upon acceptance of the data, the payment gateway will encrypt the data and get it ready for processing.
A Payment Processing wraps up the sale.
Payment processing is a service provided by a payment processor. They take the information that comes in through the gateway to complete the transaction. It’s a multi-step process that happens in milliseconds:
- They do an initial fraud check. If it comes back clean, the payment data is sent to the merchant acquirer (your business bank).
- Your bank re-secures the data and sends it off to Visa, MasterCard, Alipay, etc. for an additional fraud check. Upon completion, the request goes to the “issuing bank,” which is your customer’s bank.
- The issuing bank validates the customer data, confirms sufficient funds to cover the purchase, and gives your bank an approved or declined notice.
- The approve or decline is conveyed back through the payment gateway, and to your customer. This completes the transaction.
What are Payment Gateway options for online merchants and retailers?
The in-store payment gateway is a POS terminal at minimum. Smarter retailers look for card readers that can facilitate other payment methods, like digital wallets and global currencies. The online payment gateway gives you more options, and it’s helpful to think of them in four basic groups:
Hosted Payment Gateways.
Your customer leaves your website to enter their payment details into a payment service provider (PSP) website, which then redirects your customer back to you. The PSP takes the payment process off your plate, but you lose control over a part of your customer’s buying journey.
Self-Hosted Payment Gateways.
Your customer pays you directly through your website and your back end encrypts and transmits the data to a PSP. This gives you back control of the customer journey, but the data becomes your responsibility to protect and store properly.
API-hosted Payment Gateways.
You set up your own payment gateway and customize every setting to your liking, including your preferred payment methods. You get full control of the payment process, but you take on full responsibility for everything to do with getting paid.
Local Bank Payment Gateways.
Your transactions are routed to a local bank that processes the payment on your behalf. This is important if you’re taking payments in global currencies and requires an investment in advanced technical knowledge to integrate with local banks. But the investment pays off if you can unlock a new market. The alternative to local bank payment gateways for unlocking the global market is an end-to-end payment gateway that can facilitate global payments. More on that later.
Some payment gateway options fall into more than one category. OTT Pay, for example, can be both a hosted payment gateway and an API-hosted gateway. This kind of agility is one factor to consider when choosing a payment gateway. But there are others.
Cost
You’ll probably pay an initial setup fee and a monthly fee. You’ll also probably pay a small flat fee per transaction or a percentage of each transaction. It’s important to find out which fee model is used by the payment gateway technologies you’re considering, especially if you sell in high volumes or sell high-priced goods.
White-label capabilities
Depending on the kind of retailer you are and the value of your brand, you might want to personalize your payment gateway. Some gateway technologies let you do that. Others don’t.
Security
Payment gateways are required to abide by procedures set out by the PCI DSS compliance standard. The gateways you consider should already be compliant, but it doesn’t hurt to check.
Omnichannel Capability
Create a seamless customer experience wherever a customer is engaging with you or however they want to pay you. For example, paying at the check-out desk in your store should be as simple as paying online, which should be as simple as paying via QR code on a flyer. Some payment gateways are better at this than others. OTT Pay excels in this area.
What is a Payment Gateway? It’s part of a bigger strategy.
Smart retailers seek out an omnichannel end-to-end payment gateway that handles the front end with technology and the back end with payment processing services. The benefits to doing this are numerous.
Smooth Selling
With all your sales data in one place, accounting and reconciliation are both easier.
Considered Customers
More than half of Canadian consumers will abandon a purchase if they can’t use their preferred payment methods. Don’t let a sale get away at the end because you can’t accept a potential customer’s preferred method of payment.
Easy Experience
The checkout is the last touchpoint you have with a customer until the next one. A good checkout experience makes that next opportunity more likely. 33% of Canadian businesses are investing in technology to improve their customer experiences. Payment is a strong area of investment because you can’t make money if you’re not getting paid.
Help with hiccups
Instead of troubleshooting multiple payment platforms at the same time, your omnichannel end-to-end payment gateway does it all for you.
Global Reach
The more global payment methods you accept, the more of the globe you can sell to. If being an option for more people is something you want for your business, OTT Pay is the end-to-end omnichannel payment gateway for you.