What is a Payment Gateway & How Does It Work

Confused about everything that a payment gateway does and has to offer? 

Worry not. We’re here to break it down for you. 

Consumers are accustomed to being instantly connected — to information, to entertainment, to one another via text message and social media, and to the items that they want to buy.

With the expectation that nearly every need can be solved with the help of technology, it’s no wonder that they’ve become so privy to online payments — and the businesses that accept them.

This is the age of e-commerce. Thus, understanding and having a trusted payment gateway for your business is a must to support it online.

Let’s get a closer look at payment gateways and how they work.

What is a payment gateway?

When you walk into a store, you fill up your cart, the cashier takes your cash at the billing counter, places it in the cash register, and you can walk away with your goods.

A payment gateway does the same but online. 

It basically acts as the cashier between the customer, the business & the bank.

A payment gateway, also known as PG, is a modern technology that helps online businesses to accept payments from their customers. 

It can also be considered as software that connects the bank account related to a business to an online portal – website or app. This way, the amount that customers pay for their online purchases reaches the linked business bank account. 

Most of the payment gateways support different payment modes, including credit card, net banking, debit card, UPI, and digital money wallets. 

In the past, various banks in India were only authorized to provide payment gateways. But nowadays, you can easily find several payment solution providers entering the foray to provide these gateways. 

If you are in the middle of setting up an online business portal, you should know that a payment gateway is what will keep your payment system rolling smoothly.

Stakeholders involved in the working of payment gateways

Typically, a payment gateway involves participation from the following stakeholders:

• Issuer

It is the financial institution that manages cardholder activation and participation (SecureCode by MasterCard or Verified by Visa). It validates cardholders when they make an online purchase and provides a response to the merchants for every transaction.

• Cardholder

It refers to the account holder of a debit or credit card in use for an online transaction. He/she uses the card to pay for online purchases.

• Merchants

Online sellers who offer merchandise or services online through a website or app are referred to as merchants. They may develop their own payment solution or use a third-party payment facilitator like Paytm.

• Card Network

Card infrastructure providers like MasterCard or Visa form the card network. They verify authentication results from the issuer and respond to acquirers as per the transactions held. 

• Acquirers

These are financial institutions that register merchants for card networks and ensure that they (merchants) operate as per the rules and regulations of card network programs. 

How to integrate a payment gateway into a website?

Step 1: Establish your website 

Many online businesses use software by third parties to build a website for their consumers. This software manages to create the ordering page and all the code required for assigning payment information to the gateway. Making and generating this code from the beginning is one of the most challenging tasks for web advancement, so it’s normally better left to specialists.

Step 2: Combine payment methods

The means for this will differ from one service to the other. Still, you will usually have to record your payment gateway information for each payment method you plan to allow (Visa, Mastercard, and more.). Your payment gateway decides which cards are allowed. This can be done by you from your website’s management page or dashboard. Find the transactions page or something equivalent to begin.

Step 3: Examine the gateway 

Your payment gateway service will typically grant you Test or Sandbox accounts. These enable you to make artificial transactions to warrant that the payment process is working accurately. Be certain to experiment with this before making your website live. This provision usually changes from one service to the other. Check your payment gateway‘s help site for particulars on experimenting with your gateway’s integration.

How does a payment gateway work?

Let’s look at the different steps involved while your customer makes an online payment using their credit/debit card:

Step 1: The process begins when your customer orders a product from your payment gateway-enabled website or mobile app.

Step 2: The customer selects the products, adds them to the cart, proceeds to make the payment by entering their credit/debit card details on your business website.

Step 3: Your business’s website securely encrypts the card and other payment-related information and sends it to the payment gateway.

Step 4: The payment gateway sends this information to the acquiring bank/ processor/payment processor. An acquiring bank is a bank or a financial institution that processes payments on behalf of your business. 

Step 5: The payment processor forwards these card details to the card network. For, e.g., A Paytm Payments Bank Rupay Debit Card transaction will be sent to the network ‘Rupay’ at this stage. 

Step 6: The card network clears the payment and requests authorization from the issuing bank or customer’s bank. For, e.g., A Paytm Payments Bank Rupay Debit Card transaction will be forwarded to the Paytm Payments Bank during this stage.

Step 7: The issuing bank approves or declines the transaction and passes the transaction results back to the card network. For a successful transaction, the customer is charged, and the amount is transferred to the acquiring bank.

Step 8: The card network sends this information back to the payment processor.

Step 9: The payment processor sends the authorization results back to the payment gateway.

Step 10: The payment gateway sends this information to your business application based on the successful response and fulfills the order.

Step 11: At the last stage, a process called settlement occurs. The Payment Gateway sends the entire amount to your business’s bank account.

Benefits of a payment gateway for online businesses

The benefits of integrating a payment gateway on your e-commerce platform or app are not limited to accepting payments from your customers. 

With the right selection of a PG, you can provide a simplified experience to your end customers.

Here are some of the main benefits of using a reliable payment gateway:

• Security of personal data

PCI-DSS compliant payment gateways ensure utmost security of personal information of end consumers transacting on a portal. It also enables users to store information, like bank details or credit card numbers for recurring payments. It is the integrated payment gateway that will keep the data secure from possible cyber threats. 

• Ease of integration

Top-rated payment gateways in India are known for their quick and seamless integration into websites and apps. In other words, they are developer-friendly and come with clean, robust APIs, libraries, and plugins supporting all major platforms and languages.

• Facility to accept payments through mobile wallets

Digital transactions through mobile wallet apps in India are increasing with time, which is why most renowned payment gateways allow accepting payments through these wallets. This benefit caters to the individuals who prefer bringing their money to a mobile wallet app and then use it further to make online payments on other websites or apps.

• Fraud detection in place

Payment gateways also facilitate online businesses with various fraud detection tools, including Card Code Value, Card Verification Value, and many others. This way, they minimise the risk of losing customer’s information and also prevent fraudulent activities through a user account. 

• Real-time bank settlements

With the right payment gateway selected for your online business, you can get a quick, real-time bank settlement done for all the payments you receive through your customers. You will also benefit from its higher success route based on intelligent routing and dynamic switching between gateways/card networks. 

In a nutshell, a payment gateway creates a secure path between a customer and businesses to transfer payments. 

Millions of users can use the gateway simultaneously, making it possible for you to sell goods or services online to your target customers.

Does your business need a payment gateway?

Let’s run you through some facts before we boil down to this:

“The number of Digital Transactions in 2018 grew from 79.6 Cr in 2016 to 244.8 Cr, a three-fold increase.”

“The total value of these transactions grew 88% from 2016 @ INR 108.7 Lakh Cr to INR 204.8 Lakh Cr in 2018″.

Using a payment gateway can help lessen the frequency and severity of failure and fraud when customers make online payments on your e-commerce platform. 

Most customers are also familiar with the technology of a payment gateway for online payments now, so they don’t see it as an alien concept. 

Moreover, you can always control and customize your checkout pages, which acts as an added advantage to your business visibility. 

Having a payment gateway like the Paytm Payment Gateway ensures little maintenance and doesn’t charge anything for the same. 

How to choose a payment gateway for your business?

Selecting a suitable payment gateway is a crucial step towards growing your business online. Read this blog for the best payment gateway features and advantages to look for in 2021. 

How are merchant accounts related to payment gateways?

A merchant account refers to a bank account that is linked to payment gateways to accept payments online. You can obtain it via payment gateways, payment processors, or payment service providers. 

Once you have a merchant account, you will receive a Merchant Identification Number (MID). This MID is required to process transactions and transfer funds from your customer’s account to your business bank account. 

A merchant account also simplifies the reconciliation process. 

For example, your online store might be receiving small amounts from multiple sources for the orders placed. A merchant account, in such a situation, combines those small deposits into a bigger amount and then transfers it to your bank account.

How to set up the Paytm Payment Gateway for your business?

Setting up a Payment Gateway can be as easy and tedious depending on your scale and business line.

However, we can assure you that setting up the Paytm Payment Gateway would always be really easy. 

A simple list of steps that the onboarding of our payment gateway include:

1. Signing up, free demo
2. Selection of pricing plans
3. Document submission
4. Vetting and verification of documents by the risk team

If all goes well and your documents are approved, your business should have a fully functional payment system up and running in the span of 2 days – 2 weeks. 

With the Paytm Payment Gateway, you can enjoy this facility in just 24 hours. 

Business with Paytm: The Paytm Payment Gateway

Paytm offers several products when it comes to payments.

Right from primary payment products that seamlessly integrate into your website and app, Paytm also has specific products developed to address diverse use-cases that businesses have.

There are many reasons that make Paytm Payment Gateway the go-to choice for many small and big brands in India. With our PG solution, you get the following benefits:

• Ease of accepting payments through all payment modes
• Seamless integration of checkout
• PCI-DSS Level 1 Compliant to ensure robust data security
• Powerful dashboard to manage everything related to payments
• Easy integrations with all platforms and e-commerce plugins
• Extended products which include Subscriptions and Payment Links
• Migration assistance, and all the features mentioned above.

Considering each business has scales and volume of payments, we also offer various pricing plans that match your payments’ scale and magnitude. For instance, a small business can accept up to ₹50,000 for free.

To get started, you need to sign up to the platform and follow the steps here to ensure a smooth onboarding process. 

You can also access additional information by raising a query in our help section here.

Payment gateway FAQs

#1. How is an online money wallet different from a payment gateway?

An online wallet works as a payment instrument that can be used by customers to store money for later use. On the other hand, a payment gateway is a full-fledged payment solution that helps online businesses to accept money via a website or app. 

#2. Why do businesses need a payment gateway?’

A payment gateway plays a crucial role in approving the transactions that happen online between a customer and a business. It also authorizes the transactions, thus enabling business owners to simplify payment processing for their end customers.

#3. How much does a payment gateway cost?

The cost of integrating a payment gateway varies from one solution provider to another. You can check the pricing of the Paytm All-In-One Payment Gateway here. 

#4. Which payment modes are supported by the Paytm All-In-One Payment Gateway?

Using the All-In-One Payment Gateway, you can accept payment via credit and debit cards, net banking, UPI, Paytm Postpaid, EMI, and online wallets.

#5. Which platforms does the Paytm All-In-One Payment Gateway support?

Paytm All-In-One Payment Gateway helps you accept payments online across mobile web, desktop, Android & iOS devices. 

#6. How can I get a payment gateway?

With Paytm, you can easily get a payment gateway by submitting your business details and completing the KYC process. Sign up now to start accepting payments online using Paytm All-in-One Payment Gateway!

Wishing you happy payments!