Payment Gateway

An insight into the payment processing industry.

What Is A Payment Gateway?

A payment gateway is a service that authorizes credit card or direct payments processing for online businesses. It is essentially an alternative to point-of-sale terminals at physical stores. A payment gateway is a service that sends credit card or direct payments information from a front-end portal to the banks' payment terminal for processing and authorization, and returns the transaction details from the bank to the front end.

Total eCommerce sales worldwide are expected to touch USD 3 trillion. This number is projected to go up to USD 5 trillion by 2021. Given this rapid expansion in online shopping across the world, it becomes vital for both new and existing eCommerce businesses to provide efficient and secure payment systems to their customers. Payment gateway presents a fast and easy way for transaction information to move from a payment portal to the acquiring bank. Before getting into the payment processing business model, it would be useful to understand what exactly a payment gateway is.

The basic method by which a payment gateway works can be outlined as follows:

  • The process begins when a customer places an order on the website.
  • The merchant sends the data of that transaction to the payment gateway.
  • The payment gateway then routes the transaction to the issuing bank for authorization.
  • It is either approved or declined (based on the funds available) by the issuing bank.
  • The payment gateway then conveys this message to the merchant.
  • The bank settles the transaction amount with the payment gateway.
  • The payment gateway settles the amount with the merchant.

How Does A Payment Gateway Make Money?

  • Every transaction that is routed through a payment gateway infrastructure is subject to processing fee, charged as a percentage of the transaction value.
  • Some payment gateways also charge an annual fee.
  • Setting up a payment gateway account often involves a setup fee.