Payment Gateway | Functioning, Types, Benefits, and much more

A few decades back no one has the courage to go out shopping without carrying enough cash. But in today’s world, surrounded by numerous fintech app development services, you can hardly find someone who makes purchases with cash. Everyone uses some or other digital payment method to make monetary transactions. It is a highly convenient way of making payments to anyone. You too would probably be one of those who use digital payment gateways quite a lot. But have you ever wondered how does a payment gateway work? Here we will discuss its functioning and various other aspects from a business perspective. We will also discuss how to create a payment gateway for your business to stand out in the market. Let’s begin!

Payment Gateway and its Functioning

Payment Gateway is the technology used by merchants to allow customers to make payments with their credit or debit cards. This includes both the swiping of cards at offline stores as well as making online payments to online stores using these cards. It allows customers to easily make non-cash payments and continue their shopping.

A payment gateway has a very long process but it is also super-fast and took place in just a few seconds. Let’s have a look at the steps involved in the functioning of a payment gateway.

• A customer fills in the payment information
• A payment gateway encrypts and verifies that information
• This encrypted data is received by the payment processor
• The payment processor communicates with the issuing bank
• The bank confirms the transaction and gives this information to the payment processor
• Payment processor sends this information to the payment gateway
• The payment gateway informs the merchant’s website about the transaction

So, this is how your credit or debit card payment works. This may take you only a while to make payments, but it requires lots of time for the IT professionals to develop this gateway and make it easy for you to pay through your cards.

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Types of Payment Gateways

There are mainly three types of payment gateways based on their positioning. Let’s discuss them briefly.

Hosted Payment Gateway

This is the type of gateway in which the customers are redirected to a payment processing website to make payments. The hosted gateway is the place where the transaction took place. This type of payment gateway is most suitable for those merchants who do not have the appropriate resources to create a payment gateway of their own. They generally fail to keep up with the security standards required for a payment gateway, and thus opt for a hosted one.

Self-Hosted Payment Gateway

It is the type of payment gateway in which the customer fills in the payment information on the merchant’s site and then that data got transferred to a third-party site to make payment. This allows the merchant to have some control over the customer experience during the payment process.

API-Hosted Payment Gateway

This is the most-opted payment gateway for every type of merchant. It provides complete control over the purchasing and payment experience of the user. Here, the merchant’s site allows the customers to pay using any method they like without redirecting to another site. But the merchant has to be PCI DSS (Payment Card Industry Data Security Standard) compliant to practice this gateway as their servers will store the payment information of every customer.  

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Steps to Create a Payment Gateway

Creating a payment gateway is a lengthy process as it involves paying attention to many details. This is because it includes the payment information of the customers so it has to be made secure and fraud-proof. Let’s see what are the steps to create a payment gateway.

Research

This is the first and the most important step in creating anything, whether it is an app, a payment gateway, or a birthday card. You must know about the likes, dislikes, needs, and wants of your target audience. You must also be aware of the latest trends to keep up with the competition in the market. This research will help you form the most suitable idea to attract a large audience towards your business.

Idea Creation

Based on the research, you need to form an idea of what impact you want to leave with your payment gateway in the market. This includes all the planning to achieve the end goal. Here you decide what should be the features of the payment gateway and what extra you would provide to your customers that is not currently available in the market. There are many more things like this which need to be planned and strategized in this step.

Infrastructure Development

Once you have formed the idea of the payment gateway you want to create, you need to actualize that idea. For that, you need an excellent fintech app development company that can convert this idea into a prototype to see what it looks like. Here is a lot of scope for improvement and adding new features based on the needs of the gateway prototype. You can experiment with lots of unique features here to bring the best to the market.

Licensing and Certification

Since you are creating a payment gateway which involves the transaction of the hard-earned money of the public, you need to match the security standards of your competitors to attract more and more customers. Licensing and certification are necessary to achieve the key standards to run your gateway in the market. In this step, you make your gateway legible and trustworthy.

Payment Processing Network Integration

When you have created a payment gateway, it won’t work on its own. It needs to communicate with the payment processor network to authorize the transactions. We have seen in the functioning of the payment gateway that it sends the encrypted data to the payment processor to complete the transaction. Thus, this is a highly required step to make transactions possible through your payment gateway.

Testing and Launching

The final step after creating the payment gateway is to test it robustly so it can become error-free. Testing is a very important part of creating any application so that errors can be found and removed. This would leave zero errors in your payment gateway and would make a highly positive impact on the users after launching.

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Payment Gateway Must-have Features

To make your payment gateway stand out in the market, you need to add necessary as well as unique features to it. We have made a list of some must-have features for payment gateways that you can suggest to the development team to add to your gateway.

Simple and User-Friendly UI - Your payment gateway must have easy-to-use navigation so that your customers can use it without any hassle. This would encourage the use of your payment gateway among users and would also increase its recommendation to others.

24*7 Working - Payment gateways are also used for online payment and anyone can purchase online anytime they want. So, the payment gateway option has to be available to them whenever they want. Thus, your payment gateway has to work 24*7 to let customers make online payments.

Stability - Since payment gateways need to work 24*7 all the year, they must be stable. Customers can use the payment gateway anytime they want so it has to be stable every time they use it. If your payment gateway is not stable and frequently causes errors, then no one would want to use it. So, it has to be stable.

Support Various Payment Methods - Payment gateways are not only used to make payments using credit and debit cards but the world has advanced so much that there are many more ways to use payment gateways. To keep up with the competition, you need to make your payment gateway dynamic enough to support different payment methods such as mobile wallets and other digital payments.

Fast-Processing Speed - This is a basic requirement of any digital payment method that it must be quick and fast to avoid any type of transaction delay. A faster transaction renders a positive impact on the customer and adds value to the user experience. It makes payment hassle-free and makes your payment gateway a go-to solution for everyone to make digital transactions.

Scalable - Online purchases are not linear. They witness variations from time to time. The use of these payment gateways spikes during certain occasions like Diwali, New Year, Wedding seasons, etc. So, you have to keep these uncertainties in mind while creating a payment gateway to make it scalable.

Fraud Detection - No one will use a payment gateway that observes frequent frauds. Your payment gateway must have a fraud detection mechanism to make transactions safe and secure. This is to protect the money of both the merchant and the customer.

Multi-Currency Support - If you are a foresighted person and want to be a part of something big, not limited to just one nation, then your payment gateway must support multiple currencies. This will allow people from different nations to use your payment gateway to make transactions and purchases from all over the world.

Encryption Standards - Your payment gateway must have high encryption standards to keep customer data safe and secure. This would help in preventing the issues of data breaches and cybercrime, making your payment gateway a reliable one.

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Benefits of Creating your own Payment Gateway for Your Business

If you are a merchant and want to involve digital payment in your business, then you can opt for any of the previously mentioned three types of payment gateways. Following are the benefits of creating your own payment gateway to help your business stand out.

One-time Investment

It is a one-time investment if you are creating a payment gateway of your own for your business. This is because when you use a payment gateway of any other business, say PayPal, you pay a charge to use their services. But when you use your own gateway, you do not have to give any such charge, only the development cost and that too is only a one-time payment.

Easy to Manage Queries and Refunds

When customers use your payment gateway, you have full control over everything. You can manage everything that is happening at your payment gateway. So, if any issue of queries or refund arises, you can resolve that on your own without depending on a third party. This also makes the process fast and easily manageable leading to increased customer satisfaction.

Can Make a Passive Income

As you know that you have to pay a certain fee to use someone’s payment gateway, you can charge that fee by allowing other merchants to use your payment gateway. This way you not only save the money that you have to pay to use a third-party payment gateway but also earn money by acting as a third-party payment gateway. It is kind of a double profit.

Easy Accessibility and Quick Checkouts to Customers

When customers use the payment gateway provided by the merchant on the same platform, it becomes easier for them to make transactions. This gives them a faster and an easy-to-access experience of purchasing. They can quickly make purchases and checkout without any delay due to toggling between different sites for payment.

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Why you should go with a Payment Gateway?

If you can get direct cash from your customers, then why bother engaging in such a hassle of creating a payment gateway? Well, this is to keep up with the competition in the market and to step along with the digitally advanced world. We have seen what benefits a business can get by a payment gateway, now let’s see how it benefits the customers. The following are the two most important advantages of a payment gateway for customers.

An Alternative – This provides customers with an amazing alternative to cash payment. There are many occasions when customers do not have enough cash to make the purchase, but there is always enough money to pay via debit or credit card. Thus, this alternative allows customers to buy whatever they want without worrying about the availability of cash.

Easier to Pay – Digital payments are much easier than cash payments. It is quite hassle-free to carry cards instead of cash. It provides customers with the freedom of shopping whenever they want using their cards.

Some of the Top Payment Gateways

The world has advanced so much that there are lots of payment gateways in the market. They also act as third-party payment gateways to various merchants. Following are some of the most popular payment gateways in India that are highly used by the public.

• PayPal
• Paytm
• PayU
• RazorPay
• Cashfree
• Mobikwik
• Instamojo
• CCAvenue
• PhonePe

Summing Up

Finance mobile app development has made our life so much easier, especially, payment gateways. Cashless transactions are convenient not only for customers but for businesses also. Creating a payment gateway can be the most effective way to manage your business transactions. You can also attract lots of customers by making it easy for them to pay while checking out. There are numerous benefits of a payment gateway if you add interesting and necessary features to it. We have also discussed a list of important features from which you can take a hint and make your payment gateway stand out.