A genuine online business must have an online payment gateway in order to take payments through numerous channels, including UPI, net banking, and credit/debit cards, quickly and securely. As an online merchant, you will gain a thorough grasp of payment gateways from this book, including information on how to integrate one with your online store.
Understanding payment gateways
In its simplest form, a payment gateway (cash flow) is an interface that lets users provide certain transaction-related parameters and then sends those details to a company that processes payments.
Both physical and internet payment gateways exist. An offline payment gateway is essentially a point-of-sale terminal: the type of machine that swipes a card, types in the order price, and the customer’s PIN, all of which may now be done by merely touching the card on the machine. Simply described, an online payment gateway is a terminal that accepts payments online.
The software that facilitates the safe movement of transaction-related data from a merchant (you, the owner of an online store) to the merchant’s acquiring bank (the bank that will be given the money paid by the merchant’s customers) is known as an online payment gateway. The “Purchase/Buy” page of an online retailer and the acquiring bank are connected by this program.
A consumer who clicks the “Purchase” or “Buy” button in your store enters various important facts about the purchase, including the price, quantity, credit card number, etc. Your business then sends these details to the online payment gateway.
Following some preliminary fraud checks, the online payment gateway often encrypts all of this data before sending it via a “payment processor” to the acquiring bank. Following this, a carefully planned series of exchanges between the acquiring bank, issuing bank (i.e., the customer’s bank), and the pertinent card network (e.g., Visa, Mastercard, etc.) are carried out. The exchanges culminate in the customer’s payment being approved or denied. This final status is communicated to the online payment gateway, which then transmits it to the client via your store.
A merchant account is a special type of bank account held with the acquiring bank that enables merchants to process and accept card payments in exchange for a fee and for adhering to certain standards and regulations. In the background, the issuing bank will transfer the transaction amount to the merchant account. Unlike in the past, when each merchant had a separate merchant account, there are now a number of so-called “payment aggregators” who can provide you with a “sub-merchant account” below their own merchant accounts. As a result, merchants’ lives are made simpler because they can stop stressing about compliance.
Finally, the life cycle of a transaction is completed when your hard-earned money is sent from your (sub-)merchant account to your bank account.
Payment processor versus payment gateway
When talking about online payment channels, the phrase “payment processor” frequently comes up. As seen in the figure above and by their common definitions, these two names refer to different parts of online payment systems: Online payment gateways primarily transport transaction information between an online retailer and a payment processor, whereas payment processors primarily transport various pieces of information between the card network, issuing bank, and acquiring bank.
Additionally, the payment processor is in charge of canceling incorrect charges and putting in place rigorous security measures to reduce the likelihood that fraudulent transactions would be approved.
The RBI’s definition of payment gateways in India, which reads, “[…] entities that provide technology infrastructure to route and facilitate the processing of an online payment transaction without any involvement in the handling of funds,” is so broad that it encompasses both online payment gateways and payment processors as generally understood. Consequently, all Indian payment gateways—including PayTM, PayPal India, Razorpay, PayU, CCAvenue, etc.—also serve as payment processors.
The term “payment service provider,” which can refer to both a payment processor and a hybrid of a payment gateway and a payment processor, may also appear from time to time.
The advantages of internet payment gateways
You can gain a number of advantages from using an online payment gateway, including:
1. Greater conversions
Your online store will provide a poor customer experience if it lacks an online payment gateway since clients will have to pay you either with cash or a card when the product is delivered or by making a bank transfer to an account you specify. Customers might be hesitant to make a purchase from your store in this situation simply due to the inconvenience it might cause.
Thus, if you want to give clients the kind of seamless experience they are accustomed to, you must have an internet payment gateway to process in-store sales. Additionally, it makes a significant contribution to the professionalism and reliability of your store. All of these elements contribute to higher conversion rates.
2. Fast and safe checkouts
Online payment gateways significantly simplify a procedure that is actually rather complex, making life simpler for you and resulting in a positive client experience. Furthermore, their built-in security and fraud-detection measures give buyers and sellers peace of mind and let you scale your operations with confidence.
3. Monitoring your income and gaining business knowledge
Today’s online payment gateways go above and beyond to benefit your company. They provide dashboards, earnings trackers, and reports that give you vital information about your general performance and the customer behavior in your store so that you may create even more effective business plans.
You must select the online payment gateway that is best for you and your organization from the wide range of possibilities available to you.
The following are some important factors to take into account when choosing an online payment gateway; at the conclusion of the list, you’ll also discover a reference page where you may compare several Indian payment gateways using these factors.
Existence and dependability
You won’t be able to take any payments on your store if your payment gateway goes down. As a result, you will experience a direct loss of income when your gateway is down. The reliability of a payment gateway must therefore be known to you.
Except for reading through customer and seller feedback, there is, regrettably, no reliable way to determine this in advance. Consider starting with this comparison page for Indian payment gateways.
Regulations for the industry and security
You must make sure that you are secure against hackers or leaks and uphold client confidence when private information such as credit card numbers and confidential data is at risk. It’s a matter of your company’s reputation.
Thankfully, a number of regulatory authorities have established guidelines for online payment gateways to follow regarding security-related activities and standards. These include:
- 128-bit security
- Tokenization of SSL
- The standard for Payment Card Industry Data Security (PCI-DSS)
- Strong security requirements for a payment gateway will make it a point to actively communicate this information. For instance, PayTM makes it apparent that the company adheres to all four of the aforementioned procedures/standards, in addition to a few others. Therefore, you should search for online payment gateways that explicitly state that they at the very least adhere to the aforementioned list.
Extensions for typical e-commerce systems
A plugin is a compact piece of software that you may add to your website or online business to add a particular kind of functionality. To enable you to add a shopping cart to your store, almost all payment gateways in India offer plugins. However, they vary in terms of the platforms they support, so you should confirm that the gateway you’re considering works with the platform you’re already utilizing.
The simplicity of integrating these plugins is another factor to take into account in this situation. The majority of payment gateway plugins aim to make it as simple as possible for you to start using them, but you may need to have a basic understanding of programming or be familiar with a few technical jargons in order to apply them.
If you are completely untrained in coding, your ability to integrate a gateway will largely determine whether you need to hire a developer or not. You might be able to manage the entire procedure yourself if you have the time and desire to research a few terminologies, such as “webhooks” and “API keys,” especially if you choose a hosted gateway, as is covered in the next point.
Integrated gates as opposed to hosted gateways
When a consumer places an order and enters their payment information within your store rather than being forwarded to another website, you have an integrated gateway. In contrast, hosted gateways drive your consumers to the site of the payment processor so they may place orders there.
There are benefits and drawbacks to both sorts. Hosted gateways have a significant benefit in that the payment processor handles security-related compliance. Additionally, the payment processor handles every aspect of the transaction, the merchant doesn’t have to worry about a lot of technological issues that arise in the background. However, the redirections that these gateways perform could result in a bad customer experience and harm your conversion rate if some clients don’t trust a particular payment method.
Integrated gateways have the major benefit of giving the merchant total control over the customer experience throughout the checkout procedure. However, they also demand that the merchant is in charge of making sure that transaction data is protected. Additionally, when they are put up and when technical difficulties arise, they are likely to demand greater technical expertise on the part of the merchant.
Payment options accepted
Multiple payment options, such as credit/debit cards, net banking, UPI, mobile wallets, etc., should be available to customers. Additionally, a number of payment gateways let users pay with foreign credit cards, transfer money using different currencies, and even break up their payments into EMIs. Make sure to research which payment gateways offer the relevant procedures for your company and find out which ones they are.
Such techniques can help you develop lasting relationships with your consumers; PayU, for instance, provides customers with over 100 payment options, including “Buy Now Pay Later.”
Fees and supplementary costs
The majority of payment gateways offer customized pricing for extremely high order volumes, and most of them have basic charge structures that are quite comparable to one another.
For example, RazorPay offers a regular subscription that charges 2% per transaction and gives you access to their “Flash Checkout”, Dashboard, Reports, and a few more features. No setup or yearly maintenance fees are associated with this plan. Citrus charges 1.99% + 3 cents for every transaction, while Instamojo charges 2% + 3 cents.
To make sure you are okay with the cut you’ll have to pay out to the gateway you choose, you should definitely run through a few computations with some sensible order quantities.
Account for a merchant
While some payment gateways let you receive money immediately into your bank account, others require you to open a merchant account. While using the latter type of gateway might save you a step, doing so could result in greater transaction costs and extended funding periods. Ensure that you receive a detailed breakdown of the pertinent fees from the sales teams of the gateways you are considering.
Here is a useful tool for evaluating different Indian payment gateways based on these and other factors.