If you’re planning to start an eCommerce store and you want to accept online payments, you’re going to need to use a payment gateway. There are lots of different payment gateways, and most eCommerce platforms like Shopify offer native payment gateway integration, so it’s easy to set your store up to accept payments online.
But how does a payment gateway work? What is it? And do you really need one? Find out now in this blog from Australian Internet Advertising. In this quick overview, we’ll discuss the basics about payment gateways and payment processing at your online store.
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What Is A Payment Gateway?
A payment gateway is a secure payment service that allows you to accept credit card payments, debit card payments, and other payment methods like PayPal on your online store.
Basically, it’s a third-party service that processes your customer’s payment details, verifies them with the issuing bank, and then charges the payment method. Then, once the transaction has been processed these funds are deposited into your merchant account, and you get paid.
To simplify things further, payment gateways work as a middle-man. Your customer provides their payment details. The gateway verifies that they actually have the funds for the purchase, then charges their payment method for the cost of the items. After this, the payment gateway turns that money over to you – minus a small fee.
How Does A Payment Gateway Work?
The technical details are a bit complex, but we’ll break down the basics quickly so that you can get a better idea of how payment gateways work.
- Data entry – To begin the process, your customer will enter their card number, expiration date, card holder name, and CVV on your shopping cart and checkout page. This information is encrypted with an SSL certificate to protect the customer, and will be sent directly to the payment gateway – not your website. This ensures you don’t store any credit card numbers or payment information on your eCommerce site, which helps enhance security.
- Initial processing – The encrypted credit card details are sent to the bank that is responsible for processing the card data for your payment gateway. Fraud checks are performed at this time.
- Processing by the payment network – Once initial fraud checks have been performed, the data is sent to VISA, Mastercard or whatever other card payment network is being used for a further layer of fraud checks.
- Processing by issuing bank – Next, the transaction information will be sent to the bank that issued the credit card or debit card. This bank will perform fraud checks and check that the customer has the available funds, then authorise the transaction.
- Payment approval – After the payment is approved, this information is sent back to the payment network, then to the payment gateway. Then, the gateway charges the buyer and holds the funds for the merchant.
- Settlement – In this process, the funds will be transferred from the payment gateway to your merchant account. This may take a few days, depending on the gateway you use.
If the payment is approved, your customer will see a payment confirmation page on your website. If it fails, the transaction won’t be authorised, and the customer will be asked to provide another payment method.
Why Do I Need To Use A Payment Gateway?
Wondering why you need to bother with a payment processor at all? Why can’t you just accept payments from customers directly, and process their credit cards yourself? Well, there are a few reasons.
- PCI compliance – PCI (Payment Card Industry) standards are a set of international standards developed by credit card companies like Mastercard and VISA. If you don’t meet relevant standards at your online store, you can be fined – or banks may refuse to work with you.
Using a PCI-approved payment gateway is one of the easiest ways to make sure that you meet PCI standards, particularly if you’re a new eCommerce entrepreneur.
- Fraud protection – Payment gateways send potential payments through multiple layers of fraud protection and prevention services, which can help you recognise potentially-fraudulent activity and decline transactions made with stolen information automatically.
- Protection from expired cards & more – With a payment gateway, you’ll also be protected from expired cards, customers buying items with insufficient funds, closed accounts, or customers attempting to buy items that exceed credit limits.
Know Why Payment Gateways Matter – And Protect Your Business
All eCommerce platforms like Shopify will require you to use a payment gateway – either their own native gateway, or a third-party payment processor. And you may think this is a bad thing, since they usually charge a flat per-transaction fee and a percentage fee of between 1-3% on each purchase.
But really, payment gateways are doing a lot for you. They help protect you from fraud, reduce your liability if your website is hacked, and ensure that you meet all relevant security standards required by PCI and other industry watchdogs. Yes, the fees may be frustrating, especially for new eCommerce entrepreneurs – but you absolutely can’t run your store without using a payment gateway.
And if you need more help setting up your Shopify website, Australian Internet Advertising is here to help. Shopify is one of our specialties, so contact us online or give us a call at 1300 304 640 to talk to one of our team members today, and see how we can set you up for eCommerce success.