What Is Payment Gateway - DSers eCommerce Basics

Payment Gateway

A payment gateway is a mechanism that acts as an intermediary between customers and merchants, ensuring that transactions are completed safely and swiftly.

What Is Payment Gateway

A payment gateway is a mechanism that acts as an intermediary between customers and merchants, ensuring that transactions are completed safely and swiftly. It collects client payment information on your website, including credit and debit card details.

The payment gateway encrypts their information via the Secure Sockets Layer (SSL) and works with your bank to determine whether the transaction is legit or not. If it is, the funds will be sent to your bank account promptly. Otherwise, the payment will be refused, and you will avoid chargeback costs. It is one of the most crucial factors to consider before selecting a dropshipping tool to launch an online business.

Why eCommerce Businesses Need Payment Gateways

Payment gateways are essential for any firm that would like to accept online and credit card payments. The technology circulates the financial data around the necessary entities to enable payments and money transfers from customers to merchants.

How Does Payment Gateway Work

There are some key stakeholders involved in the online payment process:

  • Merchant

The online business that sells its products or services online.

  • Cardholder

The customer who comes to your eCommerce website and makes the purchase.

  • Issuing bank

The financial institution that holds the cardholder’s account, either a credit card or a checking account linked to a debit card. 

  • Card schemes

The credit card corporations that control the card, like Mastercard, Visa, or American Express.

  • Acquiring bank

The financial bank that holds the merchant’s account.

Here is how a payment gateway connects and navigates all of those moving parts:

i. The cardholder initiates a purchase, for example, by clicking a “Buy Now” button on the merchant’s website.

ii. The payment gateway begins by contacting the issuing bank to ensure that funds are accessible. It ensures that the transaction does not exceed the customer's credit limit or bank account balance.

iii. The payment gateway transmits encrypted card information to card schemes for processing.

iv. The card schemes approve the transaction. After that, the payment gateway sends the information back to the merchant's website to complete the transaction.

v. The payment gateway delivers the data to the acquiring bank, which transfers funds from the customer's issuing bank account to the merchant's account.

Onsite and Offsite Payment Gateways

With online payment gateways, you could have to choose from a variety of possibilities. You might be able to include the UI into your website using some payment systems. Others, on the other hand, may reroute the customer to the payment gateway's website. Here are the two main types of payment gateways:

  • Onsite Gateways

You may collect your clients' credit and debit card information directly on your website. Your customers are not routed to the payment gateway provider's website to make payments. Customers are more likely to complete the checkout process if it runs smoothly.

  • Offsite gateways

Offsite gateways redirect visitors from your site to a third-party website (the payment gateway provider's website) to complete the transaction. This approach is less expensive, easier to set up, and ideal for new businesses.

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