Working of a Payment Gateway and Expenses Associated With Using One

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While we all know of cybercrime and payment gateways helping evade such threats, do we all know how things work at the backend of our favorite e-commerce site so that our private details are safeguarded and are not leaked out to an unauthorized party?

A payment gateway is a mediator between the e-commerce site and the bank. Without this component, online payment and processing can be very tough and challenging. For a merchant choosing the right payment gateway, it is a very crucial issue. It is because the performance of his e-store will mainly depend on this component. While we all know of cybercrime and payment gateways helping evade such threats, do we all really know how things work at the backend of our favourite e-commerce site so that our private details are safeguarded and are not leaked out to an unauthorized party?

A payment gateway is a mediator between the e-commerce site and the bank. Without this component, online payment and processing can be very tough and challenging. For a merchant choosing the right payment gateway is a crucial issue because the performance of his e-store will mainly depend on this component.

The technicalities involve:-

  1. The shopper or the user is ushered into the hosted or the integrated payment page once he confirms that he has completed his ordering.
  2. At the payment page he is asked to choose from the different payment modes, and then accordingly fill in the details.
  3. Once the details are received, the payment gateway checks with the issuing bank to authenticate the payment. The bank checks for the availability of funds in the customer’s account and accordingly declines or authorizes the payment.
  4. The payment gateway then transfers this authentication message received from the bank to the e-commerce site after which the store proceeds with the checkout formalities.
  5. Meanwhile, the bank issues the payment to the payment gateway. The gateway service provider then settles the dues with the merchant as per their agreement.

Hosted or integrated, the charges or the cost of hiring a payment gateway typically fall under the following types:-

  • The first is the registration fee that is usually paid in the beginning and is mainly towards integrating the payment gateway with the e-commerce site. It is a one-time payment.
  • A monthly fee that would be related to maintenance charges
  • A transaction or a fixed fee that is charged as a percentage of each transaction taking place through the gateway. It is also known as the payment processing fee.
  • And a chargeback fee.

Typically payment gateways charge the payment processing fee as per the volume of transactions. More the transactions lesser is the transaction fee. Some gateways offer free set-up, but their fixed fee is high while some offer free set-up with limited functions.

A merchant, while evaluating the strengths and weaknesses of a payment gateway should always remember that the ultimate objective of attaching a gateway with his e-commerce site is to make things convenient and easy for his customers. It is also done with the purpose of processing payment in a secure manner so that customers trust the e-commerce site and come back, again and again, to shop here. Hence, even if it requires more investment at the onset, going ahead with a robust and reliable payment gateway should be the preference of the merchant. The merchant needs to consider things like compatibility issues between the gateway and the e-commerce platform, the payment options that are supported and also the currencies supported by the gateway.

 The technicalities involve:-

  1. The shopper or the user is ushered into the hosted or the integrated payment page once he confirms that he has completed his ordering.
  2. At the payment page he is asked to choose from the different payment modes, and then accordingly fill in the details.
  3. Once the details are received the payment gateway checks with the issuing bank to authenticate the payment. The bank checks for the availability of funds in the customer’s account and accordingly declines or authorizes the payment.
  4. The payment gateway then transfers this authentication message received from the bank to the e-commerce site after which the store proceeds with the checkout formalities.
  5. Meanwhile the bank issues the payment to the payment gateway. The gateway service provider then settles the dues with the merchant as per their agreement.

Hosted or integrated, the charges or the cost of hiring a payment gateway typically fall under the following types:-

  • The first is the registration fee that is usually paid in the beginning and is mainly towards integrating the payment gateway with the e-commerce site. It is a one-time payment.
  • A monthly fee that would be related to maintenance charges
  • A transaction or a fixed fee that is charged as a percentage of each transaction taking place through the gateway. It is also known as the payment processing fee.
  • And a charge back fee.

Typically payment gateways charge the payment processing fee as per the volume of transactions. More the transactions lesser is the transaction fee. Some gateways offer free set-up, but their fixed fee is high while some offer free set-up with limited functions.

A merchant, while evaluating the strengths and weaknesses of a payment gateway should always remember that the ultimate objective of attaching a gateway with his e-commerce site is to make things convenient and easy for his customers. It is also done with the purpose of processing payment in a secure manner so that customers trust the e-commerce site and come back, again and again, to shop here. Hence, even if it requires more investment at the onset, going ahead with a robust and reliable gateway should be the preference of the merchant. The merchant needs to consider things like compatibility issues between the gateway and the e-commerce platform, the payment options that are supported and also the currencies supported by the gateway.

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