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The payment gateway sector in India is predicted to witness a CAGR of 15% by the year 2027. In today’s market, online shopping is becoming more popular due to the constant increase of online buyers. Standing out from the rest of the e-commerce stores in the market depends on how well a business can satisfy the demands of its customers. In this context, a reliable e-commerce payment system plays a vital role in catering to seamless transactions.
Are you a growing e-commerce business? You should now feel certain that choosing to accept online payments through payment gateways is the best course of action to simplify your clients’ payment procedure and enhance your cash flow.
This guide will help you know the most important factors to consider while choosing a payment gateway. Hence, keep reading to know more about the same.
Why Payments Gateways Are Important?
E-commerce stores must offer secure, fast, and convenient payment options to their customers. This is where payment gateways play an indispensable role. They are not just a bridge between merchants and financial institutions; they are a crucial component of customer trust and satisfaction. Here’s why payment gateways are so important:
Security: Stringent security is at the heart of any online transaction. Payment gateways employ advanced encryption and security protocols, such as SSL (Secure Socket Layer) encryption, to protect sensitive information from cyber threats. Especially in sensitive industries like firearms, a high-risk payment gateway ensures that customers’ personal and payment information is securely transmitted over the internet, safeguarding against data breaches and fraud.
Customer Experience: Payment gateways contribute significantly to a seamless customer experience. They allow for a variety of payment methods, including credit cards, debit cards, and e-wallets, accommodating the preferences of a diverse customer base. Furthermore, they streamline the checkout process, making it quick and hassle-free, which is crucial for reducing cart abandonment rates and enhancing customer satisfaction.
Global Reach: For e-commerce stores looking to expand their market globally, payment gateways facilitate transactions in multiple currencies and support different international payment methods. This capability is essential for accessing broader markets and catering to customers worldwide, ultimately driving growth and expansion.
Compliance: Payment gateways adhere to international payment standards and regulations, such as PCI DSS (Payment Card Industry Data Security Standard), ensuring that e-commerce stores comply with these requirements without needing to invest heavily in their infrastructure. This compliance is critical for operating legally and maintaining customer trust.
Reporting and Reconciliation: Modern payment gateways offer advanced features such as reporting and analytics, providing valuable insights into purchasing trends, transaction success rates, and customer behaviour. This data is crucial for making informed business decisions, optimizing the payment process, and improving overall operational efficiency.
How Does an E-Commerce Payment Gateway Work?
Any payment gateway works on the guiding principle of efficient, safe, and trouble-free payment processing. Instead of sending payments, a payment gateway authorises the money sent to a seller, protecting the buyer’s security.
Here are the steps that demonstrate how payment gateways for e-commerce businesses work:
Step 1: The whole process starts when a customer puts an order for the desired goods or services on an e-commerce website or mobile application.
Step 2: The customer enters payment information during the checkout process, including credit card information, debit card information, or information for other payment methods like online wallets or bank transfers.
Step 3: The payment gateway encrypts the payment data to guarantee the protection of sensitive data. Encrypting the data during transmission prevents unauthorised parties from accessing or intercepting the data.
Step 4: Then, the payment gateway receives encrypted payment information from the e-commerce website. It works as a medium between a merchant’s website and the payment processor or acquiring bank.
Step 5: The authorising bank receives a request for authorisation, runs security checks, and confirms that the customer has enough money on hand or credit available to conduct the transaction. To confirm the validity of the transaction, the bank may also run fraud checks.
Step 6: The issuing bank transmits an authorisation response to the payment processor, which then delivers the response to the payment gateway based on the verification results.
Step 7: The payment gateway notifies the e-commerce website of approval or decline status. If the transaction is successful the retailer can move forward with order fulfillment.
Step 8: The money from the customer’s account is sent to the merchant’s account once the transaction has been completed.
Step 9: Once done, the consumer is given written confirmation of the transaction’s success. After that, the order will be processed and shipped by the merchant.
Types of E-commerce Payment Systems
A powerful payment gateway provides your customers with a variety of secure e-commerce payment options. E-commerce store owners have the option to choose from the following two types of payment gateways:
1. Hosted Payment Gateways
Customers using hosted payment gateways are sent to a different website to complete their payment operations. The customer is briefly removed from the e-commerce store’s website during this process to enter their payment details.
The payment gateway sends the customer back to the online store’s website after the transaction is complete. Hosted payment gateways typically require less technical skills and are simpler to set up.
2. Integrated Payment Gateways
Customers can instantly finish their payment transactions on the website of the e-commerce store thanks to integrated payment gateways. These gateways offer a more streamlined user experience and result in seamless integration into the e-commerce store’s checkout procedure.
Additionally, connected payment gateways give owners of e-commerce stores more control over the checkout procedure.
Key Players In The Payment System
The ecosystem of online payments is vast, with several key players that facilitate secure, efficient transactions. Understanding who these players are and their roles can help you make an informed decision on which payment solutions to integrate into your e-commerce platform. Here are the top key players in the payment system:
Payment Gateways: These are the first touchpoints in the online payment process, acting as a bridge between your e-commerce store and payment processors. Payment gateways, such as Stripe and PayPal, securely transmit your customer’s payment information to the payment processor. They are critical for encrypting sensitive data, and ensuring that personal and financial details are securely handled.
Payment Processors: Once the payment gateway forwards the transaction data, payment processors come into play. They are responsible for processing the transaction with the customer’s bank (issuing bank) and the merchant’s bank (acquiring bank). Examples include Square and WorldPay. They verify transaction details, ensure funds are available, and ultimately approve or decline the transaction.
Merchant Account Providers: These entities provide merchant accounts that allow businesses to accept credit and debit card payments. A merchant account acts as an intermediary holding account for the funds between when a transaction is approved and when it is settled into the business’s bank account. Some payment processors offer merchant account services as part of their package, simplifying the setup process.
Issuing and Acquiring Banks: The issuing bank is the customer’s bank that issues their credit or debit card, while the acquiring bank is the merchant’s bank. Both play crucial roles in the approval and settlement of transactions. They work behind the scenes, with the payment processor acting as the mediator, to ensure transactions are completed successfully.
Payment Networks: These are the networks that connect all the above players, including Visa, MasterCard, and American Express. They set the rules and standards for transactions, including security standards and transaction fees.
Choosing the right mix of these key players for your e-commerce store involves considering factors such as transaction fees, payment methods accepted, security features, and integration ease. Selecting partners that align with your business needs and customer preferences can enhance the shopping experience, leading to higher satisfaction and loyalty.
10 Important Factors to Consider When Choosing a Payment Gateway Provider
E-commerce has been a trending topic for both customers and businesses due to its direct impact on our lives. It has significantly altered how people pay for goods and services, promote, and work, and it will undoubtedly continue to change in the foreseeable future.
Selecting e-commerce payment systems that fit your business model is an essential decision for your e-commerce business. In case you choose a payment gateway that does not meet all the requirements, there are chances of losing customers as well as a considerable sum of money.
Some of the most important factors to keep in mind while choosing an e-commerce payment system are the following:
- Cost
The amount you’ll spend in total is the most important factor to take into account when choosing a payment gateway. The set-up fee, monthly fee, and transaction fee are the three types of fees connected with a payment gateway.
You must consider both the volume and value of your transactions when deciding on the most cost-effective choice for your company. The transaction fees can drastically raise costs for businesses conducting high-value transactions.
In these situations, it is advisable to search for payment gateways that provide their services for a set monthly fee and a smaller transaction fee, as they may be more economical for your company.
- Permitted Card Types
Visa, MasterCard, and American Express are among the most widely used credit cards. The majority of payment gateways accept all of the aforementioned cards.
However, you must ensure that the payment gateways on your ecommerce site handle any additional types of cards that your clients frequently use to pay you, such as debit cards or Diners Club cards.
- Holding Time
The majority of the time, the money is kept on hold for a few days before being approved for payment and deposited into your account. This holding period permits the processing of refunds and chargebacks.
Depending on your payment service provider, these holding periods’ lengths might range from 1 to 7 days. Again, depending on your business’s cash flow requirements, you can choose to either wait for the standard settlement or make immediate payments.
- Multiple Currency Options
It is essential to confirm that your payment gateway can handle payments from different countries and in different currencies if your company conducts business globally. It is crucial to let your clients make payments in their home currency and know the fees related to transactions involving foreign currencies.
- Recurring Billing
Subscription-based businesses must choose a payment gateway that can handle all facets of recurring billing. The selected supplier must be able to save and maintain customer information for upcoming purchases, automatically charge credit cards by predetermined subscription schedules, and offer retry options for unsuccessful transactions.
If you don’t have these features, you might have to complete all of these tasks manually, which would increase your workload and complicate your business operations.
- Hosted vs. Non-Hosted
There are two types of payment gateways: hosted off-site and non-hosted. Each method of hosting payment gateways has benefits and drawbacks of its own. Using hosted gateways lowers the risk of storing sensitive information on your website, which is one of its advantages. Redirecting customers to another website has the disadvantage that it lengthens the payment process by adding an extra step, which is not ideal as well.
- Security
Prioritising the security of a payment gateway is essential when it comes to accepting payments online. This is because it involves storing private financial data. It is important to remember that different payment gateways adhere to differing security requirements.
So, in order to protect your company from unauthorised transactions, choose a payment gateway that comes with fraud detection and several other screening features.
- Mobile Payment Option
As a majority of people now shop using their smartphones and tablets, it becomes essential to choose a gateway that can support payments made from these mobile devices. This will provide your customers with the flexibility to make payments regardless of the device they use.
- Limits
Some payment gateways place a cap on the number of transactions you can execute monthly. While this might not be a problem for small firms, it’s important to be aware of any such restrictions if your company deals in high-value commodities or conducts a lot of transactions. Disregarding these restrictions could result in losing potential clients.
- Connection with Other Systems
You must also take into account the ability of your payment gateway to integrate with your accounting or invoicing software. With the help of this integration, each time you receive a payment, the invoice in your bookkeeping system can be updated automatically. As a result, you do not have to manually record transactions and update them time and again.
Conclusion
The usage of right e-commerce payment methods enables a seamless and hassle-free collection of customer payments. However, it takes some work to locate a payment gateway that satisfies every requirement. It must fit your business’s requirements, be appropriate for your area, enable global payments so you can serve consumers from other countries, and ideally be affordable. Considering factors, such as security, payment alternatives, user experience, transaction costs, and customer support can prove to be highly beneficial when selecting a payment gateway for your e-commerce store.
