What are Payment Gateways?
A payment gateway is a software service that keeps customer data, transaction details, and other critical information secure during a transaction. Payment gateways are involved in processing each type of cashless transaction, including credit, mobile, debit, or digital wallet, and more.
According to UK Finance, there were 2.16 billion debit and credit card transactions in the UK in March 2024. These figures were 4.2 percent higher than in March 2023, which suggests that cashless payments in the UK are only increasing. That’s why businesses use payment gateways to make these transactions secure for their consumers. In both online and physical stores, these transactions can be of all types: credit/debit/digital and more.
Key Stakeholders in Processing a Transaction
There are more stakeholders than just a payment gateway involved in processing an online transaction. All these stakeholders work together from when a consumer enters their card information to initiate the payment until the money is transferred from the consumer’s bank to the business’ funds.
Following are all the parties that work together to carry out a transaction:
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Payment processor
The payment process is a bank service that handles any cashless transaction for a business. It contacts back and forth with the consumer’s bank and the business’s merchant account throughout a transaction.
Payment gateway
We have already learned about the payment gateway. It is a tool that makes your online transactions secure for you. These payment gateways are why you can enter your cardholder information on a website to pay online without worries. They make sure your sensitive data remains safe and doesn’t get stolen.
Merchant account
A merchant account is the crucial intermediary between the consumer’s bank and the business’s bank account. It temporarily holds the funds from cashless transactions before transferring them to the main business account.
Any business accepting card transactions needs this account from their bank service.
Breakdown of the working process
Now that we have the main components down, let’s see how they all work together to execute a transaction.
- A consumer makes a cashless payment, it can be a credit/debit/digital wallet/ online payment. To proceed with the payment, they enter the needed information, which typically includes the card number, cardholder’s name, card expiration date, and CVV code.
- This is where the payment gateway gets to work. It encrypts the data before sending it over to the payment processor to keep it secure.
- The payment gateway then communicates with the consumer’s bank to confirm whether they have enough funds to proceed with the transaction.
- After the confirmation, it transfers the funds to the business’s merchant account, completing the transaction.
- The funds remain in the merchant account for some time for helpful reasons. If the consumer wants a refund or the transaction gets revoked for any reason, the money in the merchant account can easily be sent back without any disputes.
How do Payment Gateways Work?
Up until now, we knew that payment gateways protect the critical data of a cardholder. The question is, how? Let us discuss some ways that different payment gateways keep your data secure.
PCI DSS compliance
The Payment Card Industry Data Security Standard (PCI DSS) is a set of instructions and regulations worldwide for any company that processes the credit card information of its consumers. It uses a set of tools to keep sensitive information secure.
Reliable payment gateways are PCI DSS compliant, which means they meet the industry standard for security and reliability.
Tokenisation
Tokenisation is a process through which payment gateways convert critical information to just a normal piece of data that can’t be exploited. For example, through tokenisation, payment gateways will convert the card number of a consumer into a random combination of numbers.
This combination cannot be in the order of another card number, nor can be traced back to find the original combination of the numbers.
Encryption
You have probably heard about encryption because it is the most common method of securing any type of data. It works by converting sensitive data into a secret code that can’t be accessed by a third party (except for the ones that are given access.)
Payment gateways use different encryption protocols, like Secure Sockets Layer (SSL) and Transport Layer Security (TLS) to secure this data on online websites.
Anti-fraud tools
Payment gateways use various anti-fraud tools to detect any unusual behavior. Some of these tools include:
- Fraud detection algorithms: These algorithms work on machine-learning programs to detect anomalies. For example, rapid transactions from the same cardholder, excessive spending that doesn’t match the usual transaction history, and transactions at the same time from different locations.
- Card verification code: Payment gateways require the consumer to provide the CVC. This code is only provided on a credit or debit card. It makes sure that the person making the transaction has the card.
- Transaction alerts: If a payment gateway detects any unusual activity, it will inform the cardholder via email or contact. This helps the cardholder take immediate action.
Cost of Payment Gateways
The 3 primary costs associated with the payment gateways in the UK are:
- One-time setup fee: £0 – £250
- Monthly fee: £10 – £45
- Charge per transaction: £0.00 – £0.25
How to Choose the Best Payment Gateway for Your Business
There are countless options for payment gateway services in the UK market. You need to make an intelligent choice when choosing a payment gateway so that it matches your business requirements and budget.
Consider the following points to assess whether a payment gateway is suitable for your business.
Pricing
Consider the pricing criteria of a payment gateway. You also have to make sure it aligns with the volume of your transactions. For example, if you process a high volume of cashless transactions every month, you might want to look for a payment gateway provider that offers a cheaper fee per transaction.
But we also have to keep in mind that if a payment gateway offers advanced security and encryption, it will be costly compared to any other provider that offers cheaper prices with limited features. Make sure you don’t compromise on quality when looking for budget-friendly deals.
Currency support
Look for payment gateway providers that have currency support for international transactions. This feature will improve your customer relationship and also reduce expenses for international currency conversions.
No hidden payments
Transparency is one of the most important things when working with a payment gateway service provider. Make sure you communicate well before signing up with them. Ask about their pricing system, how they deal with their clients, and if there are any other expenses you should know about.
Furthermore, search for a payment gateway company online, look for customer reviews to see how other people have had their experiences with the same company, and then decide if the company culture matches your requirements.
Customer service
Challenges are inevitable for businesses when working with customers over time. Disputes over payments, refunds, or any unexpected fee can arise at any moment.
That’s why choosing a payment gateway provider with a reliable customer service team is important. A reliable company should have multiple channels where businesses can reach out to them, like email, phone, and chat support.
Security assessment
The core function of any payment gateway is, of course, the security it provides for transactions. A reliable payment gateway solution should have PCI DSS compliance. When a company is PCI DSS compliant, it means it is reliable and safe to trust.
Payment options
A good payment gateway should have three payment options: credit card, debit card, and digital wallet. Look for a payment gateway provider that fulfills this condition.
Integration
Last but not least, a feature to look for is the ability to integrate with your existing system. If you have an online shop, POS systems in physical stores, or any other e-commerce platform, a payment gateway should be easily compatible with your system.
If you are considering more than one payment gateway provider, choose the one that provides easy integration.
Who Needs A Payment Gateway?
There is no limitation as to who needs a payment gateway in the UK. More than 70% of the transactions in the UK are cashless. There is hardly a business nowadays in the UK that accepts only cash payments.
So everyone who runs a business, startup, SME, or large business, needs a payment gateway to securely process cashless transactions. Businesses with online shops, brick-and-mortar stores, and physical store-fronts, all need a payment gateway.
4 Benefits of Payment Gateways
Let’s discuss the benefits of payment gateways for your business:
Improved security
Payment gateways imply multiple security measures like PCI DSS compliance, encryption, tokenisation, and fraud-detection tools to keep cardholders’ data safe and ensure secure transactions. All these tools provide improved security for a business and its consumers against cyber-crime and data theft.
Multiple currency options
Most payment gateway providers offer multiple currency options for transactions. This feature is immensely helpful for online shops and businesses that work worldwide.
When customers see the pricing in their own currency while shopping, they feel a sense of trust and reliability towards the business. Moreover, they can instantly get an idea of how much a product costs instead of manually converting the prices from another currency to their own. This also helps a business stand out from its competitors.
Aside from customer support, businesses also cut down on currency inversion costs during international transactions.
Improved customer experience
Reliable transactions, multiple currency options, various payment options, and fast payments, ultimately improve customer service for a business’s consumers. This is how businesses build trust with their consumers to retain them over a long period of time.
Global Exposure
Choosing a payment gateway that supports worldwide transactions and multiple currency options is crucial for businesses that aim to build a global identity. This capability allows businesses to expand their customer base across multiple countries, providing them with worldwide exposure and growth opportunities.
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