What is a payment gateway?
A payment gateway is a software service that enables online payments by securely transferring payment data between a customer’s bank and the merchant’s bank account. It acts as a virtual point of sale (POS) terminal for online transactions, making sure that sensitive payment details are encrypted and transmitted privately.
According to Statista, the e-commerce industry in the UK reached a revenue of £102 billion in 2023. And this is expected to grow in the coming years. Moreover, more and more customers are shopping online as it saves hassle and time. To take maximum benefit of this trend, your business should start getting online card payments, if not already.
But for that, the establishment of a payment gateway is necessary.
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How does a payment gateway work?
1. Customer initiates the payment: When a customer decides to make a purchase online, they proceed to the checkout page and enter their payment information such as credit card number.
2. Encryption of information: The payment gateway immediately encrypts the customer’s payment details using SSL or Transport Layer Security (TSL) technology.
3. Request sent to payment processor: The encrypted data is sent to the payment processor, which acts as the middleman between the merchant’s bank and the customer’s bank. It forwards the transaction request to the issuing bank for approval.
4. Bank validates the transaction: The issuing bank checks if the account has sufficient funds and approves the transaction. An authorisation code is sent back to the payment processor.
5. Transaction confirmation: The payment processor forwards the authorisation code to the payment gateway, which then notifies the merchant and customer that the transaction has been successful.
6. Settlement process: After the authorisation, the merchant bank collects the transaction amount from the customer’s bank through a process called settlement. The funds get deposited within 1-2 business days.
Let’s jump into the benefits of payment gateways now.
6 Benefits of Payment Gateway For Your Business
Let’s discuss the advantages in detail now.
1. Security
Payment gateways employ advanced encryption and tokenisation techniques to protect sensitive customer data such as credit card numbers and personal information. This significantly reduces the risk of data breaches and fraud. These gateways also offer robust fraud detection and prevention tools, including real-time monitoring and AI-driven suspicion detection.
Many digital businesses in the UK undergo payment gateway testing where they make sure that:
- Sensitive customer data is encrypted to protect it from unauthorised access.
- Correct taxes are automatically added to the total amount during the transaction process.
- Payments occur over a secure channel,
ensuring the safety of the transaction. - The payment portal is designed to handle increased loads without crashing.
2. Cost saving
Another advantage of a payment gateway is the cost saving for your business. Most payment gateways do not require expensive setup fees making them a cost-effective solution for accepting payments. This affordability allows businesses, especially small and medium-sized enterprises, to integrate payment solutions without significant upfront investment.
Additionally, automating the payment process minimises manual handling and administrative overhaul. This reduces labour costs associated with processing transactions, reconciling accounts and handling payment-related inquiries.
Furthermore, many payment gateways in the UK offer competitive transaction fees, which can be lower than those of traditional payment methods.
3. Enhanced customer experience
Another key benefit of using online payment gateways is their ability to enhance customer experience during the checkout process.
- Seamless checkout process: They integrate seamlessly into the business’s website. The customers can complete their purchases quickly and easily without being redirected to external sites e.g. payment link pages.
- Multiple payment options: Modern gateways support a wide range of payment methods, including credit and debit cards, digital wallets like Apple Pay and bank transfers.
- Mobile optimisation: They typically provide instant transaction confirmations and digital receipts in the form of SMS or email.
- Localised payment experience: Many modern payment gateways display prices in the customer’s local currency which makes the checkout process more relatable and easier to understand.
4. Faster payments
Payment gateways facilitate quicker payments compared to traditional methods, which can enhance cash flow and operational efficiency for businesses.
They process the transactions in real time. This rapid processing reduces the time lag between a customer making a purchase and the business receiving the funds. Unlike traditional banking methods that may take several days for funds to clear, these gateways often complete the transfer of funds within hours.
5. Fraud detection
Payment gateways are equipped with advanced fraud detection technologies. These systems use a combination of real-time monitoring, machine learning algorithms and risk assessment tools to identify and block suspicious activities.
These mechanisms usually analyse factors such as transaction patterns, IP addresses, geo-location and device information to flag fraudulent behaviour. This proactive approach not only safeguards businesses from financial losses and chargeback fees but also enhances customer trust by ensuring their payment information is secure.
5. Increased sales
Payment gateways also benefit businesses by boosting their sales. How, you may ask?
- Enhanced checkout experience: A seamless checkout process minimises friction and reduces card abandonment.
- Currency conversion: They enable international sales by supporting transactions in multiple currencies and languages. By providing localised payment options, businesses enhance the shopping experience for international buyers and drive more sales.
- Recurring payments and subscriptions: Payment gateways simplify the management of businesses working on subscription models. Automated billing and secure transactions reduce the likelihood of payment disruptions.
Explore Reliable Payment Gateway Options In The UK With ComparedBusiness
If you’re ready to employ these benefits of payment gateways, contact ComparedBusiness. It streamlines the setting up of a digital payment gateway for your business by connecting you with reliable payment gateway providers in the UK. Just submit your requirements in under 2 minutes and we will get back to you with quotes from them. This will cost you nothing.
Businesses need payment gateways to securely process online payments, enabling customers to pay via credit cards, debit cards and digital wallets. Payment gateways ensure that transactions are encrypted, protect sensitive data and provide an efficent checkout experience.
Payment gateways secure transactions by encrypting sensitive payment data using SSL/TLS technology. This ensures the details are not intercepted by unauthorised parties. They may also utilise fraud detection tools such as CVV checks.
A bank is a financial institution that holds customers accounts and processes funds, while a payment gateway is a technology platform that facilitates online transactions between customers and merchants. The gateway acts as an intermediary in the payment process.
