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Payment Gateway
A payment gateway is a separate service and acts as an intermediary between the merchants’ shopping cart and all the financial networks involved with the transaction, including the customers’ credit card issuer and your merchant account. It checks for validity, encrypts transaction details, ensures they are sent to the correct destination and then decrypts the responses which are sent back to the shopping cart. A payment gateway can be thought of as a digital equivalent to a credit card processing terminal.
A Payment Gateway is an e-commerce service that authorizes payments for e-businesses and online retailers.
This is a seamless process and your customer does not directly interact with the gateway; as data is forwarded to the gateway via your shopping cart and a secure (SSL) connection. The shopping cart is configured via plugins to send information in a format that is acceptable to the particular gateway.
How payment gateways work
Payment gateways encrypt information handled through SSL(Secure Socket Layer). This prevents
opportunity for fraud, and adds security to the transaction process. Gateways communicate with a variety of entities, including:
• The customer
• The merchant (through their website)
• Credit Card companies (by verifying information)
• Internet Merchant accounts that relay order information from the gateway to the merchant’s bank account
Benefits of payment gateway
Benefits of having a payment gateway are: t
1 Security:
Gateways keep customers credit card data behind firewalls so that the merchant doesn’t have to worry about someone “hacking in” to their system.
2 Encryption:
Gateways use SSL encryption to prevent message tampering while the credit card information is being transmitted over the Internet. EMS provides the most secure encryption technology.
3 Back-up redundancy:
Gateways have a backup system in place to ensure that merchants can continue processing in the event of an emergency.
4 Up-to-date technology:
Gateways are services that are constantly upgraded to be up to date with the latest technology. And, because the gateways are not on merchants' computers, there is no need for the merchants to upgrade their hardware. Gateways save the cost of an additional phone line that would be needed in a dial application.
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FAQs on Payment Gateway - Business Models & Concepts, E-Commerce - E-Commerce - B Com
| 1. What are the different business models used in payment gateways? |  |
Ans. The different business models used in payment gateways include:
- Transaction-based model: In this model, the payment gateway charges a fee for each transaction processed.
- Subscription-based model: In this model, the payment gateway charges a monthly or annual subscription fee to merchants for using their services.
- Flat fee model: In this model, the payment gateway charges a fixed fee for a certain number of transactions, regardless of the transaction value.
- Custom pricing model: Some payment gateways offer custom pricing based on the specific needs and requirements of the merchant.
| 2. How does a payment gateway work in e-commerce? | |
Ans. In e-commerce, a payment gateway acts as a bridge between the customer's bank and the merchant's bank, facilitating secure online transactions. Here's how it works:
- Customer places an order on the merchant's website and selects a payment method.
- The payment gateway encrypts the customer's payment information and securely sends it to the acquiring bank (merchant's bank).
- The acquiring bank forwards the payment information to the issuing bank (customer's bank) for verification.
- The issuing bank verifies the customer's details and account balance to ensure sufficient funds.
- The issuing bank sends an authorization or decline response to the acquiring bank.
- The acquiring bank relays the response to the payment gateway, which then informs the merchant and customer about the transaction status.
| 3. What are some of the key concepts related to payment gateways? | |
Ans. Some key concepts related to payment gateways include:
- Payment Card Industry Data Security Standard (PCI DSS): This is a set of security standards that all payment gateways must comply with to protect customer data.
- Tokenization: This is a security measure used by payment gateways to replace sensitive cardholder data with a unique identifier called a token, reducing the risk of data breaches.
- 3D Secure: This is an additional security layer used by payment gateways to authenticate the cardholder during online transactions, reducing the risk of fraud.
- Payment settlement: This refers to the process of transferring funds from the customer's bank to the merchant's bank after a successful transaction.
- Chargebacks: This occurs when a customer disputes a transaction and requests a refund, leading to funds being reversed from the merchant's bank account.
| 4. How do payment gateways ensure the security of online transactions? | |
Ans. Payment gateways ensure the security of online transactions through various measures, including:
- Encryption: Payment gateways use encryption technology to scramble the customer's payment information, making it unreadable to unauthorized parties.
- Secure Sockets Layer (SSL): Payment gateways use SSL certificates to establish a secure connection between the customer's browser and the gateway's server, ensuring the privacy of data transmission.
- Fraud detection and prevention: Payment gateways employ sophisticated algorithms and tools to detect and prevent fraudulent transactions, such as analyzing transaction patterns and IP geolocation.
- PCI DSS compliance: Payment gateways adhere to the PCI DSS standards to protect customer data and ensure secure processing and storage of payment information.
- Tokenization: By replacing sensitive cardholder data with tokens, payment gateways minimize the risk of data breaches and ensure that customer information is securely stored.
| 5. What factors should businesses consider when choosing a payment gateway? | |
Ans. When choosing a payment gateway, businesses should consider the following factors:
- Transaction fees: Businesses should compare the transaction fees charged by different payment gateways and choose the one that offers competitive rates.
- Security measures: It is important to ensure that the payment gateway has robust security measures in place to protect customer data and prevent fraud.
- Integration options: The payment gateway should be compatible with the e-commerce platform or website used by the business for seamless integration.
- Customer support: Businesses should consider the level of customer support provided by the payment gateway, including availability, responsiveness, and technical assistance.
- Additional features: Some payment gateways offer additional features such as recurring billing, mobile compatibility, and multi-currency support, which may be beneficial for certain businesses.
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