About Payment Gateway

A payment gateway is a way to process electronic transactions. Payment gateways provide the tools to process payments between customers, businesses, and banks. A payment gateway is an e-commerce application service provider service that authorizes payments for e-businesses, online retailers, bricks and clicks, or traditional brick and mortar. It is the equivalent of a physical point of sale terminal located in most retail outlets. Payment gateways protect credit card details by encrypting sensitive information, such as credit card numbers, to ensure that information is passed securely between the customer and the merchant and also between merchant and the payment processor.

Some of the main features of a payment gateway include:

• Software application designed especially for ecommerce, although it can be used to authorize payments in traditional brick and mortar businesses.
• Encryption of payment and personal data.
• Communication between the financial institutions involved and the business and the customer.
• Authorization of payments.

How payment gateways work

A payment gateway facilitates the transfer of information between a payment portal (such as a website, mobile phone or IVR service) and the Front End Processor or acquiring bank. When a customer orders a product from a payment gateway-enabled merchant, the payment gateway performs a variety of tasks to process the transaction

1. A customer places order on website by pressing the 'Submit Order' or equivalent button, or perhaps enters their card details using an automatic phone answering service.
2. If the order is via a website, the customer's web browser encrypts the information to be sent between the browser and the merchant's webserver. This is done via SSL (Secure Socket Layer) encryption.
3. The merchant then forwards the transaction details to their payment gateway. This is another SSL encrypted connection to the payment server hosted by the payment gateway.
4. The payment gateway forwards the transaction information to the payment processor used by the merchant's acquiring bank.
5. The payment processor forwards the transaction information to the card association (e.g., Visa/MasterCard)
   • If an American Express or Discover Card was used, then the processor acts as the issuing bank and directly provides a response of approved or declined to the payment gateway.
   • Otherwise [eg: a Mastercard or Visa card was used], the card association routes the transaction to the correct card issuing bank.
6. The credit card issuing bank receives the authorization request and does fraud and credit or debit checks and then sends a response back to the processor (via the same process as the request for authorization) with a response code [eg: approved, denied]. In addition to communicating the fate of the authorization request, the response code is used to define the reason why the transaction failed (such as insufficient funds, or bank link not available). Meanwhile, the credit card issuer holds an authorization associated with that merchant and consumer for the approved amount. This can impact the consumer's ability to further spend (eg: because it reduces the line of credit available or because it puts a hold on a portion of the funds in a debit account).
7. The processor forwards the authorization response to the payment gateway.
8. The payment gateway receives the response, and forwards it on to the website (or whatever interface was used to process the payment) where it is interpreted as a relevant response then relayed back to the merchant and cardholder. This is known as the Authorization or "Auth"
9. The entire process typically takes 2–3 seconds.
10. The merchant then fulfills the order and the above process is repeated but this time to "Clear" the authorization by consummating the transaction. Typically the "Clear" is initiated only after the merchant has fulfilled the transaction (eg: shipped the order). This results in the issuing bank 'clearing' the 'auth' (ie: moves auth-hold to a debit) and prepares them to settle with the merchant acquiring bank.
11. The merchant submits all their approved authorizations, in a "batch" (eg: end of day), to their acquiring bank for settlement via its processor.
12. The acquiring bank makes the batch settlement request of the credit card issuer.
13. The credit card issuer makes a settlement payment to the acquiring bank (eg: the next day)
14. The acquiring bank subsequently deposits the total of the approved funds in to the merchant's nominated account (eg: the day after). This could be an account with the acquiring bank if the merchant does their banking with the same bank, or an account with another bank.
15. The entire process from authorization to settlement to funding typically takes 3 days.

Many payment gateways also provide tools to automatically screen orders for fraud and calculate tax in real time prior to the authorization request being sent to the processor. Tools to detect fraud include geolocation, velocity pattern analysis, OFAC list lookups, 'black-list' lookups, delivery address verification, computer finger printing technology, identity morphing detection, and basic AVS checks.

Security

Since the customer is usually required to enter personal details, the entire communication of 'Submit Order' page (i.e. customer - payment gateway) is often carried out through HTTPS protocol. To validate the request of the payment page result, signed request is often used - which is the result of the hash function in which the parameters of an application confirmed by a «secret word», known only to the merchant and payment gateway. To validate the request of the payment page result, sometimes IP of the requesting server has to be verified.
    There is a growing support by acquirers, issuers and subsequently by payment gateways for Virtual Payer Authentication (VPA), implemented as 3-D Secure protocol - branded as Verified by VISA, MasterCard SecureCode and J/Secure by JCB, which adds additional layer of security for online payments. 3-D Secure promises to alleviate some of the problems facing online merchants, like the inherent distance between the seller and the buyer, and the inability of the first to easily confirm the identity of the second.

If you already have a Web site, but you haven't been using it to automatically process payments from customers, you will need to integrate a payment gateway if you are planning to take your Web site to the next level and reach more customers.

What you need for payment gateway integration

Payment gateway integration requires a little bit of work. It is a software application that needs to be stored on your server. This means that you may need a little more bandwidth and/or disk space. Check the requirements of the payment gateway to make sure that your current hosting package will be able to handle the increase in technical requirements. Another thing you will need to do is make sure that the payment gateway is compatible with the programming language used on your ecommerce Web site. 

Check to find out whether you are using one of the following:

• ASP or ASP.NET
• Perl/CGI
• PHP (rather popular)
• Visual Basic .NET

Make sure that your payment gateway uses the same language as the rest of your Web site, so that they fit together well. Additionally, you will need to find out what sort of fees and costs are associated with payment gateway integration and service.

In many cases, it can be easiest to have your payment gateway integrated by your ecommerce Web host. This way, you know that the gateway is compatible with your site, and your payment gateway costs can be rolled into your hosting service fee. Just make sure you understand whether or not a service upgrade is required when you add a payment gateway to your ecommerce Web site.

Popular payment gateway providers

If you are looking for a good payment gateway, there are some payment providers that are more popular than others. These include:

• PayPal
• Google Checkout
• 2Checkout
• Authorize.net
• Cyber Source
• LinkPoint

What you decide on depends on your needs, as well as what you can afford. You might find that simply integrating PayPal or Google Checkout does the trick, even though it may not be customizable. In some cases, it is worth your while to choose a more expensive company and a programmer that can help you integrate your payment gateway in a more personal manner.

As more and more people do their shopping online, businesses are finding that they need to offer payment options that are easy and convenient to use. One of the payment options growing in popularity is Google Checkout. Google Checkout is not exactly a payment gateway. However, it does facilitate payment from customers. Customers can use credit or debit card in order to pay. Indeed, Google works in such a way that customers can leave their personal payment information with Google Checkout, and they do not have to enter in at other Web sites – as long as that site accepts Google Checkout. Google Checkout does not charge any gateway, set up or monthly fees. The only fees charged are transaction fees. 

Amazon payment gateway

Amazon offers a payment service for sellers and affiliates of Amazon, as well as services for those on other Web sites. For those that sell on Amazon, the payment system is extremely easy to use. It is integrated with your seller account, and it can even work with Amazon fulfillment in the case that you rely on Amazon to ship the items that you sell. The Amazon account can also be used in conjunction with the commissions you might get as part of an affiliate selling Amazon products and services.

For those businesses that are not exactly affiliated with Amazon, but would still like to take advantage of a trusted and inexpensive payment service provider, there are options as well. You can accept payments through the Amazon Pay Now widget or through some other means. This process brings the buyer to the Amazon site, where they can use their Amazon account to pay for purchases at your Web site. For customers, this can bring peace of mind, since many savvy online shoppers do not like to leave personal payment information at multiple sites.

Pricing for the Amazon payment gateway

Pricing for Amazon payment gateway services is relatively reasonable. Indeed, it is faster than most traditional payment gateways. Basically, Amazon has this fee structure for sellers and online businesses that use its services:

• On transactions that are greater than ten dollars, Amazon charges 2.9% + 30 cents.
• For transactions that are less than ten dollars, there is a 5% + 5 cents fee.
• There are volume discounts for different monthly transaction amounts at the $3,000 - $10,000 level, the $10,000 - $100,000 level and the $100,000+ level.

While some of the per-transaction fees are about the same as other payment gateway services, the savings come in with regard to other fees – or the lack of them. Amazon payment services do not require start-up fees or monthly charges. Additionally, you do not have to sign any long-term contracts. There are no charges beyond the per-transaction fee. Most traditional payment gateway services have minimums and monthly charges, as well as other fees.

Payment gateways and merchant accounts are similar, keep reading for differences. If you want to accept credit card payments online, you will generally need an internet merchant account. This type of bank account is specifically designed to allow you to accept online payments.

Merchant accounts are bank accounts set up specifically for receiving credit card payments, such as those processed through a payment gateway. Online stores need an internet merchant account. Many banks prefer to give merchant accounts to brick-and-mortar businesses, those with a physical store, rather than those that are solely online, so those with online-only stores may have to shop around to find an internet merchant account. Some merchant accounts are also regular bank accounts, while others simply accept the payment and then deposit into another business account for you.

You will probably have to go through a third party to get a merchant account unless you are a very large business. Merchant accounts may come as part of an eCommerce package or in conjunction with a shopping cart or payment gateway, or merchants can establish one on their own. If you do get a merchant account separately, make sure that it is compatible with your payment gateway and shopping cart software.

It is important to read the details of a merchant account carefully to avoid being surprised by unexpected fees. It is also wise to do some research about the merchant account bank to make sure it has a good reputation and is legitimate.

Banks that offer merchant accounts make a portion on their profits through fees, some of which may be clearer than others.

Some fees a merchant account may be charged include:

• Annual fees, charged yearly to keep the account open. In some cases, these fees may be waived if the merchant does a certain amount of business or keeps a minimum balance above a certain amount.
• Authorization fees may be charged for each transaction.
• Batch fees for processing payments. A batch is all the transactions for one day, and some accounts charge for processing the batch. A batch must be settled each day or higher fees will be imposed.
• Minimum monthly fees may set, where the account will be charged a set minimum fee every month unless their transaction fees total a higher amount. 
• Chargeback fees occur, for instance, if the merchant charges a customer incorrectly.
• Early termination fees may exist if a customer has a contract with a merchant account bank for a certain amount of time and cancels before the contract is over.

You can expect to go through an application process to get a merchant account just as you might for setting up other kinds of bank accounts. You may need to provide proof that you are a legitimate business as well as have a credit check.

It is often easiest to get a merchant account as part of an eCommerce package, but it is still important to make sure that the account meets your needs and that you understand all the fees and they seem reasonable. Don't hesitate to ask questions about anything that seems unclear to you, and to shop around until you find an internet merchant account you feel comfortable with.

source: bestpaymentgateways