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How to Build a Payment Gateway: Definition and Central Questions

Home >> How to Build a Payment Gateway: Definition and Central Questions

How to Build a Payment Gateway: Definition and Central Questions

Considering an upsurge in the e-commerce market space, there has been a high demand for payment gateway for e-commerce websites. If you run an online store, it becomes a necessity for you to include a payment gateway in your system to securely handle the payments as a secure payment gateway assists you in gaining the trust of your consumers.

A payment gateway enables retailers to take digital payments swiftly, securely, and simply. The basic function of any secure payment gateway is to handle transactions in a way that protects your customers’ money and data.

To get high-quality services regarding the effective integration of online payment services into your e-commerce website, you can contact any renowned e-commerce website development company for the best solutions.

Digital payments and e-commerce are relatively new technology and hence, there are many terms and terminologies that are unambiguous to most of us. Let us throw some light on some common payment-related terms to get clarity.

Definitions of some common Payment Terms 

Consumers

The party who pays for products or services obtained through an online marketplace or e-commerce platform. The terms buyer and customer are used interchangeably in this context.

Merchant

The party that uses an online marketplace or e-commerce platform to sell products or services to customers. The phrases supplier and seller are sometimes used interchangeably.

Payment Gateway 

A payment system that authorises and processes online payments through one or more integrated Payment Service Providers is known as a Payment Gateway.

Payment Service Providers (PSPs)

Payment Service Providers (PSPs) are technology companies that provide software for accepting payment methods such as direct debit, bank transfer, PayPal, credit card, and so on.

Method of payment

A particular way or method of making a payment is called a method of payment. Payment Methods can be through credit cards or debit cards.

Instrument for Payment

The exact personal method of payment utilised for a particular payment flow. For example, if you select your Visa credit card as the Payment Instrument during checkout at an online marketplace, your instrument for payment is the Visa credit card.

Now that we have a clear understanding of the basic terminologies, we can dive into the details of the payment gateway and the central questions regarding the subject.

Important Central Questions in Payment Gateway?

Lets’ have a look at a few of the most common central questions related to payment gateway.

1. What is a Payment Gateway?

A payment gateway is a complicated mechanism that allows online and offline retailers to accept debit/credit card payments. It ensures the seamless flow of such transactions by encrypting sensitive data and transmitting it between a buyer, an online store, and a bank. The store serves as a payment portal, while the bank serves as a payment processor.

  • The payment gateway facilitates communication among the three payment process participants.
  • It collects data from the user and, depending on the payment method selected, transfers the payment to the processor in a readable manner.
  • It maintains the security of every transaction by utilising multiple anti-fraud measures and operating in accordance with PCI compliance.

Also Read, 7 Tips to Consider While Choosing Best Payment Gateway for Ecommerce

2. What Is the Difference Between Payment Gateways and Payment Service Providers?

Payment Gateways are distinct from Payment Service Providers. Payment Gateways authenticate and initiate the transaction, delivering transactional information to Payment Service Providers. The Payment Processors of the PSP then become operational. It is in charge of accounting or transferring money from one account to another.

Payment Gateways often comprise numerous Payment Service Providers (PSPs) and accept a wide range of payment methods, including debit and credit card transactions, bank transfers, and even cryptocurrency payments. Furthermore, several markets opt for Payment Gateways that accept preferred local payment methods.

Payment Gateways can be thought of as Payment Service Provider Integrators. They often use routing logic to select the optimal Payment Service Provider for the particular payment flow based on parameters such as nation, merchant category code, customer verification and risk level, transaction prices, and so on.

You might also like – Digital Wallet vs Payment Gateway vs Payment Processor

3. What are the Key Components of a Payment Gateway?

An effective payment gateway must include the following key components:

  • Integration with a Variety of Processors
  • Security & Fraud Management
  • Scalability to Add New Features
  • Disputes/Chargeback & Arbitration

4. Why should you Build a Custom Payment Gateway?

In today’s market, there is a large assortment of payment gateways to select from, each with its own set of perks and downsides that impact the services you may offer through that platform. Determining the benefits and drawbacks of each off-the-shelf software can make the process of selecting the best payment solution time consuming and tiresome.

Building your own payment gateway from start entails a number of maintenance and development charges. Thus it is advisable to use an external payment gateway system than you building your own payment gateway system as it can turn out to be highly expensive.

Choosing a customized platform for a payment gateway, on the other hand, will give you the solutions that you desire without breaking heavily into your budget. So, if you invest in a bespoke platform rather than a newly produced platform, you will be investing in a long-term product that is tailored to your unique company requirements.

A customized payment gateway normally needs a higher commitment in terms of time and money; nevertheless, this custom payment gateway solution will significantly assist your business to develop and thrive.

5. Who needs a custom Payment Gateway?

Companies that profit greatly from the development of a custom payment gateway include:

  • Large merchants with a large turnover who don’t want to rely on a third-party source.
  • High-growth payment providers in need of a more modern payment processing infrastructure
  • Existing billing organisations that seek to change or update their software
  • IT companies who want to expand their business by operating as a payment service provider
  • Acquiring banks who seek to strengthen their front-end solution

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