A payment gateway is a technology that powers e-commerce by translating currencies and allowing a business to deal with billing and payments. This is a secure way to process transactions where your customers pay you.
When a customer wants to pay for something online, they have to enter their credit card details which are transmitted as encrypted data through the payment gateway. A single payment gateway can be used for most types of credit cards and is accepted by most banks. However, there are several types of different gateways to accept payments. Keep reading to learn more about each of them.
What Is A Payment Gateway?
A payment gateway is a piece of software that mediates the transfer of funds between merchants and customers. Such service enables payments to be processed and bills to be submitted. It’s an important tool in the financial system that helps run your business.
The basic function of a payment gateway is to enable transactions between the merchant(s) and customers without involving banks, credit card companies, or other third parties. The primary benefit is end-to-end processing, which means the merchant can deal with paying their suppliers directly from their checking account (from the moment they accept a charge instead of paying via credit card).
Why Should You Use Payment Gateways?
They are very helpful in handling payments, especially if you sell products or services online. They provide a secure environment where your customers can complete their transactions without the risk of having their credit card information stolen. In addition, they hide the complexity of processing payments from your customers. This allows you to focus on your core business and attract new clients who expect to be able to pay with different cards online.
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Types Of Payment Gateway
The following types of payment gateways will be discussed: Hosted Payment Gateways, Self-Hosted Payment Gateways, API Hosted Payment Gateways, and Local Bank Integration (LBI).
Hosted Payment Gateways
These payment gateways run on their servers, and you can log in and manage them using a user interface. Some of the prominent examples are Braintree, Stripe, Paypal, and Recurly. The merchant’s customers don’t have to go through any steps to sign up to the gateway; they simply use a credit card or PayPal account as normal when paying for goods or services, and then the gateway is used to process the payments.
By offering an end-to-end experience, merchants access extensive features such as recurring billing, payments across multiple channels, fraud prevention, and much more.
Self-Hosted Payment Gateways
These payment gateways run on the merchant’s servers, installed in their environment. This payment gateway is managed via an administrative interface where the merchant can manage their customers, integrate with different payment options, create/manage coupons, get inventory information, and much more.
Self-Hosted Payment Gateways are not limited to one type of payment processor and support different features. They connect directly to a bank account and keep track of transactions, giving you more information about your sales when compared to Hosted Payment Gateways.
A merchant can integrate their brand with the gateway to make them look like any other part of the merchant’s online store. They don’t need to prepare a separate checkout process for their customers. All they have to do is link the payment gateway with their website. In addition, they get access to advanced features and can track payments more easily thanks to managing everything from one interface.
API Hosted Payment Gateways
API Hosted Payment Gateways provide Plugin APIs for merchants to integrate with the API. When customers check out, they are redirected to a redirect API endpoint. This plugin API is then used to send the transaction parameters and create a unique transaction ID.
An API Hosted Payment Gateway provides a good balance between the benefits of using a Self-Hosted gateway and that of using a 3-Party gateway. It has all the features provided by 3-party and self-hosted gateways, except that merchants don’t have to install any software on their servers.
They are easy to install and support all the most common payment processors. They also offer an extensive documentation guide that explains how they work in detail so you can make sure they are functioning as expected.
Local Bank Integration
Merchants can integrate their payment gateway with their bank and set up a payment workflow. This means that merchants can accept payment and send it directly to their bank using a service provided by your bank. Payments are tracked, so you know exactly how much money was spent and on which products, reducing the need to keep track of purchases made on your website.
This type of integration allows merchants to manage payments without going through additional steps, increasing the level of security for their customers. This also makes it easier for customers to complete transactions, especially those that want to pay with an alternative card (in addition to their normal card).
The Bottom Line
The type of gateway you choose is determined by your business goals and specific needs as a merchant. Whether you are doing eCommerce, marketing, or selling physical goods, it’s important that you understand what kind of gateway you need: a 3-party gateway or a Self-Hosted Gateway.
By implementing the right payment gateway solution for your business, you will make sure your customers have the best user experience possible, which is crucial for improving customer loyalty and sales.
