In the modern, digital-first economy, as a business owner, you need to provide a seamless and secure payment solution for your customers. Whether you own an offline retail shop or an online store, offering multiple and easy-to-use payment options to customers may be a key factor in running your business successfully.
It could make a significant difference in whether the customer chooses to return to your business. Additionally, by offering greater payment flexibility, you can provide a better shopping experience for customers, earn their loyalty, and encourage repeat business. This is where a merchant payment gateway plays a critical role.
In this guide, we discuss what a merchant payment gateway is, how it works, its types and its benefits. Read on!
What is a merchant payment gateway?
As a business owner in India, a merchant payment gateway is a must-have tool as it helps you process and authorise online transactions and the payments made by your customers. It acts as a link between your business’ website and the customer’s bank, ensuring that the payment data is encrypted and secured.
When a customer makes a purchase from your online or offline store and pays online through their digital wallet, credit/debit card, or net banking, the gateway takes over. It validates the payment data and gets approval or declines the payment after getting a response from the customer’s bank.
A merchant payment gateway is a critical tool for your business to accept payments made via various methods, provide an enhanced customer experience, and boost sales.
Types of merchant payment gateways
- Hosted payment gateways
Among the various types of payment gateways available to businesses, the hosted payment gateway is the most widely used in India. It redirects customers to a secure external payment page provided by the gateway. The customer completes the payment on this page and is then redirected to your website again.
One of the key reasons why many small business owners utilise a hosted payment gateway is that it is relatively easy to integrate into their website, and it also provides a high level of security, ensuring transactions are safe for customers. Additionally, it also reduces the business owners’ responsibility for compliance.
- Self-hosted payment gateways
Another common type ofpayment gateway for merchantsis the self-hosted payment gateway. It allows you to host the payment page directly on your business website. When your customers enter their payment details on the website, they are securely transmitted to the payment processor for verification.
This method enables you to have better control over the customer experience, as the entire transaction takes place on your business website. However, unlike a hosted payment gateway, the onus of implementing robust security measures for processing transactions lies with you.
- API (Application Programming Interface)-based payment gateways
Today, many new business owners prefer using API-based payment gateways, as they offer the opportunity to customise the gateway and integrate it directly into their business website or mobile applications through APIs, enabling seamless transactions between their side and the gateway without redirecting the customer to a different page.
Thus, it allows you to have full control over merchant transactions, maintain a smooth transaction flow for customers, and provide them with a better shopping experience. However, setting up the API-based payment gateway may seem challenging for some business owners as it requires technical expertise.
How does a merchant payment gateway work?
Now that you know what a merchant account payment gateway is and its types, it would also help to understand its working from a customer’s point of view.
Let’s assume you are a customer and make a purchase of Rs. 1,000 from the ABC e-commerce website. Now, let’s examine the entire payment journey from start to finish.
- You make the purchase and initiate the payment process on the ABC website. Now, you can enter your card details on the payment page, including the cardholder’s name, card number, expiration date, and CVV (card verification value) code. This information is then securely transmitted to the payment gateway, depending on the merchant’s preferred integration method.
- The payment gateway then encrypts the data, i.e., card details. It conducts a fraud check before sending the data to the acquirer, i.e., the financial institution that processes card payments on behalf of merchants.
- The acquirer sends the information to the card schemes, which conduct another round of fraud checks and then transmit the payment data to the issuer for authorisation. The issuer is the bank or financial organisation that issued the card to you.
- The issuer authorises the transaction after completing the fraud screening process by validating the transaction information and ensuring that the cardholder or the customer has sufficient funds to complete the purchase and that the bank account is valid. It then sends an approved or declined message to the acquirer.
- The acquirer passes the message back to the merchant’s payment gateway, and depending on the message, you will be redirected to a payment confirmation page or prompted to select an alternative payment method.
- Once the payment is approved, the settlement process begins. Here, the acquirer collects the payment amount from the issuing banks and places the funds ‘on hold’ in the merchant account. When the actual settlement occurs, depending on the agreement the merchant has with their payment service provider, the funds are released.
Conclusion
A merchant payment gateway is an indispensable tool for all modern businesses seeking to stay competitive and thrive in today’s dynamic business landscape. It plays a crucial role in delivering a superior customer experience, ensuring seamless operations, safeguarding transaction security, and providing valuable insights. Thus, it plays an important role in the business’s success and growth.
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