In the rapidly evolving world of e-commerce, understanding the role and functionality of online payment gateways is essential. From enhancing customer trust to enabling the secure transfer of funds, payment gateways play a pivotal role in the infrastructure of modern e-commerce.
These systems streamline transactions and enhance the security and efficiency of online shopping for customers. Meanwhile, for merchants well-versed in the payment industry, recognising the intricacies of how these gateways operate can provide significant advantages in navigating the digital marketplace.
In the following article, we’ll explore payment gateways, delve into their mechanics, and discuss why they’re critical for the seamless operation of online payments. We’ll demystify the technology and shed light on its strategic importance for merchants looking to optimise their sales processes and expand their operational capabilities.
Topics we’ll discuss include:
- What is a payment gateway?
- How does a payment gateway work?
- Why are online payment gateways important?
- How to get started with payment gateways?
- Which are the most popular payment gateways in Europe?
- Is it necessary to use a payment gateway?
What is a payment gateway?
A payment gateway is a technology that acts as a digital cashier who takes payment from a customer’s debit or credit card when they buy goods or services online. The payment gateway is the bridge between the customer’s bank and the store, ensuring that the payment is safe and smooth.
Thus, a payment gateway acts as the intermediary between a merchant’s website and its banking system, ensuring that sensitive information (such as credit card numbers) is passed securely from the customer to the merchant and between the merchant and the customer’s bank. Payment gateways ensure sensitive information is securely transmitted. Read more about initiatives concerning the access and security of financial data.
How does a payment gateway work?
When an online payment gateway facilitates a transaction, there are four key stages in the process. Each stage is designed to ensure secure and efficient online transactions.
Here’s how payment gateways work:
Stage 1 – Transaction initiation
The process begins when a customer decides to make a purchase and enters their payment details on the merchant’s checkout page. The payment gateway then captures the customer’s data (including credit card or bank account details) and encrypts it to ensure privacy and customer security against cyber threats.
Stage 2 – Data transmission
Once the customer’s payment information is encrypted, the payment gateway transmits it to the payment processor appointed by the merchant’s bank (the acquiring bank). This step involves several layers of security protocols to ensure that the data is transmitted safely over the internet. During data transmission, the payment gateway acts as a mediator, ensuring that the transaction data moves securely from the merchant to the acquiring bank.
Stage 3 – Bank authorisation
The acquiring bank then sends the transaction details to the card association (e.g., Visa, MasterCard, etc.), which routes the information to the card-issuing bank to verify the transaction and confirm sufficient funds are available. This verification step is crucial, as it involves authenticating the transaction by the issuing bank, which either approves or declines the transaction based on the customer’s available funds and account status.
Stage 4 – Completion and confirmation
Upon authorisation from the issuing bank, the payment gateway communicates the outcome to the merchant and the customer. This response indicates whether the transaction has been approved or declined. If the transaction has been approved, the funds are transferred from the customer’s bank to the merchant’s account, typically within a few days. The merchant can then complete the sale and arrange to deliver goods or services.
If the transaction has been approved, the funds are transferred from the customer’s bank to the merchant’s account, typically within a few days. The merchant can then complete the sale and arrange for the delivery of goods or services.
By delving into these stages, we can better understand how payment gateways not only facilitate e-commerce but also enhance transaction security, making online shopping a reliable option for consumers and businesses alike.
Why are online payment gateways important?
Payment gateways ensure that information is passed securely between the customer and merchant, as well as between the merchant and the bank.
Here’s why they’re so important:
- Security for customers and businesses: Online payment gateways encrypt sensitive payment information to be transmitted securely online.
- Real-time payment authorisation: Payment gateways allow transactions to be authorised in real time – meaning a customer knows instantly if a payment is accepted or declined, and businesses can process orders immediately without delays or manual checks.
- Multiple payment methods: Most online payment gateways support a range of payment methods – credit cards, debit cards, digital wallets, and even cryptocurrencies. This flexibility increases conversion rates and improves the customer experience.
- Global reach: A good payment gateway can handle transactions in different currencies, languages, and countries, enabling businesses to expand internationally without needing multiple payment systems for different markets.
- Improved checkout experience: Fast, reliable, and seamless payment processing reduces cart abandonment and helps build trust with customers.
- Reporting and fraud management: Online payment gateways often come with built-in reporting tools and fraud detection features (like 3D Secure, address verification, and transaction limits), helping merchants monitor sales and prevent fraud.
In short, online payment gateways ensure transactions are fast, secure, and seamless.
How to get started with payment gateways?
Businesses typically need to set up a merchant account to begin using a payment gateway. This is a type of bank account that allows a business to accept and process credit or debit card payments from customers. After setting up a merchant account, businesses must choose a payment gateway provider and integrate it with their online shopping cart software, such as Magento, Shopify or Squarespace Commerce.
Which are the most popular payment gateways in Europe?
The European e-commerce market is highly diverse, meaning that the most popular payment gateway can vary depending on the country. However, the following payment gateways stand out for their reliability, wide range of features, and adaptability. Here are six of the top European contenders:
- PayPal: Offers comprehensive payment solutions, recognised globally for its security and broad merchant services.
- Stripe: Highly popular among developers for its flexible API, which supports a wide array of payment methods and currencies.
- Adyen: Known for its ability to handle transactions globally and its support for many local payment methods, providing a seamless payment experience.
- Worldpay: One of the largest payment processing companies globally. It offers a wide range of services, including credit card processing and mobile payments.
- PayU: Provides payment services tailored to the needs of local markets, with a strong presence in many emerging markets.
- Sage Pay (now part of Elavon): Popular in the UK and Ireland, and known for providing secure payment services for both small and large businesses.
How to select a payment gateway for your business
When choosing a payment gateway, you should consider not just the transaction fees and security measures, but also compatibility with existing systems and specific needs, like support for international transactions or mobile payments.
Each gateway has strengths that cater to different aspects of e-commerce, so make sure to choose a payment gateway that aligns with your business’s strategic goals.
Is it necessary to use a payment gateway?
In short, no. Thanks to open banking, the need for traditional payment gateways is evolving, and there is now a viable alternative to using an online payment gateway.
Within the varied landscape of payment solutions across Europe, new online payment providers are emerging as a pioneering force in the fintech sector. One such provider is Brite Payments. Why is this?
Payment gateways and Brite Payments
Through its Instant Payments Network, Brite offers seamless Pay by Bank (account-to-account payments) services, connecting over 3,800 banks within the EU. This innovative approach simplifies the payment process and bypasses traditional payment gateways, directly facilitating bank-to-bank transfers.
Unlike traditional payment gateways that process card payments, Brite Payments focuses on A2A (Account-to-Account) transactions. This method eliminates the need for card networks, thereby reducing transaction fees and enhancing payment security. By directly linking with merchants, Brite ensures that communications and transactions are safe, secure and efficient, streamlining the flow of funds without the intermediation of a gateway.
For merchants, integrating Brite’s services through a contracted gateway provider can accelerate the technical setup. This allows access to Brite’s A2A payment solutions alongside other payment methods, like card payments and invoices.
Thus, Brite’s strategic focus on open banking and payment innovations positions it as a key player in the digital economy. A digital economy in which you do not need a gateway and can therefore save time and money. By adopting Brite’s Instant Payments Network, businesses can enjoy improved transaction security, lower costs, and greater adaptability. This positions them advantageously in a competitive market, enabling them to harness efficient, transparent, and secure transaction mechanisms.
Get in touch with our payments experts today to see what Brite Payments can do for your business.
