This post of upipayments.co.in tells you what a payment gateway is and how it works. You would also learn about the main features of the payment gateways. I would also answer some of your important questions.
What is a Payment Gateway
A payment gateway is an application used for the online payments. It facilitates and authorizes the payment made through credit card, debit card, Net banking or UPI. A third party provides the application of payment gateway to the e-commerce sites.
The payment gateway for e-commerce is equivalent to the point of sale machine at a retail store. As, in a retail store you can make payment using your cards along with the cash. The payment through the card is done by the point of sale machine. This machine facilitates fund transfer between customer’s account and merchant account. The same thing payment gateway does when a customer pays at a e-commerce site.
- It is used for electronic payments
- It facilitates payment from customer’s account to merchant account.
- It is similar to the Point of Sale machine
Tasks of a Payment Gateway | Why Do We Need it?
A payment gateway eases the payment process both for the customers and merchants. However, it is the responsibility of the merchant to provide the payment gateway facility so that customer can easily make payment.
- Because of the payment gateway, a customer can use any methods of payment. Be it credit card, debit card, net banking or UPI.
- It gives instant confirmation of the payment. the customer would see the payment confirmation by the payment gateway on the screen.
- It also stores card details. The stored details make it easier to pay in future. The customer would have to enter only the CVV details in the future. All other details would be pre-filled.
- When a e-commerce site accepts payment on its platform, it is the responsibility of the site to give a safe payment environment. Since, online payment involves the data transfer through internet, the risk rises. The payment gateway transfers this data securely. They use the encryption before the data transfer.
- The payment gateway companies are PCI compliant thus store your data in a secure hosting server. Not all the e-commerce companies can avail such hosting.
- The online merchant also get API tools for the customization. It is important as different merchants have different needs.
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How Payment Gateway Works
The payment gateway provides an platform for the processing and authorization of online payments. It does the transaction securely so that the card data remains safe. A payment gateway performs 3 main tasks.
Following are the basic steps of payment process through this gateway.
- A customer places an order on a e-commerce website. It goes to the checkout page and chooses the payment method.
- The e-commerce site leads the customer to the page of payment gateway.
- The customer enters the card details at the payment gateway platform.
- The payment gateway routes the transaction to the issuing bank or 3D secure page.
- The customer authenticates by entering OTP or sign in password.
- After the authentication succeeds the transaction is authorized by the bank or card issuer (Visa, Master, Rupay).
- The payment gateway sends the message to merchant.
- The bank settles the payment to the payment gateway. Then the payment gateway settles the amount to the merchant account.
Charges of Payment Gateways
The payment gateway comes with the cost. The merchant has to pay its charges. There are three types of fees charged by these platforms.
1. Setup Fee
It is a one time fee charged at the beginning. Earlier most of the payment gateways charged this fee. However, only few of them charge this amount.
2. Annual Maintenance Charge [AMC]
It is like a rent for providing the payment gateway facility. This is charged irrespective of your business. However, many companies have waived this charge.
3. Transaction Deduction Rate [TDR]
It is the direct fees and everyone charges. This charge is a percent of your transaction amount. The transaction deduction rate varies from 0% to 5%. The rate also varies on the basis of payment mode.
The established player such as Paypal, CCavenue and EBS charges high TDR. But this rate goes down as you increase the setup fee and annual maintenance charge. But newer player such as Paytm, Payumoney, instamojo has much affordable plans.
You can also negotiate the charges before on-boarding a payment gateway. You can easily get rid off the set up fee. Also, if you have a high volume of transactions the TDR can be lower.
So, This was the information about the payment gateway. Now you select one of the best payment gateway for your business. After selecting the company, you would be guided to set up the gateway on your platform.