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Payment Gateway Guide

A payment gateway is a mechanism that acts as an intermediary between a customer and a merchant, ensuring transactions are completed securely and quickly.

What Is a Payment Gateway

A payment gateway is a mechanism that acts as an intermediary between a customer and a merchant, ensuring transactions are completed securely and quickly. It collects customer payment information on your website, including credit and debit card details.

Payment gateways encrypt their information via Secure Sockets Layer (SSL) and work with your bank to determine if the transaction is legitimate. If so, we will promptly remit the funds to your bank account. Otherwise, the payment will be declined and you will avoid chargeback fees. This is one of the most important factors to consider before choosing a dropshipping tool to start an online business.

Why Ecommerce Businesses Need Payment Gateways

A payment gateway is essential for any business that wants to accept online and credit card payments. The technology circulates financial data around the entities necessary to enable payments and money transfers from customers to merchants.

How Payment Gateways Work

Some key stakeholders are involved in the online payment process:

merchant

An online business that sells its products or services online.

cardholder

Customers who come to your eCommerce website and make a purchase.

issuing bank

The financial institution that holds the cardholder's account (credit card or checking account linked to a debit card).

card scheme

The credit card company that controls the credit card, such as MasterCard, Visa, or American Express.

acquisition bank

A financial bank that holds a merchant account.

Here's how a payment gateway connects and navigates all these moving parts:

  1. The cardholder initiates the purchase, for example, by clicking a "Buy Now" button on the merchant's website.
  2. The payment gateway first contacts the issuing bank to ensure funds are accessible. It ensures that transactions do not exceed the customer's credit limit or bank account balance.
  3. The payment gateway transmits the encrypted card information to the card scheme for processing.
  4. The card program approves the transaction. Afterward, the payment gateway sends the information back to the merchant's website to complete the transaction.
  5. The payment gateway delivers the data to the acquiring bank, which transfers the funds from the customer's issuing bank account to the merchant's account.

On-site and off-site payment gateways

With online payment gateways, you can choose from various possibilities. You can include UI into your website with some payment systems. On the other hand, others may reroute customers to the payment gateway's website. Following are the two main types of payment gateways:

Online gateway

You can collect credit and debit card information from your customers directly on your website. Your customers will not be routed to the payment gateway provider's website for payment. Customers are more likely to complete the checkout process if it goes well.

Offline gateway

Off-site gateways redirect visitors from your website to a third-party website (the website of the payment gateway provider) to complete the transaction. This method is less expensive and easy to set up, making it ideal for new businesses.

Want to know more?

Does AliExpress accept PayPal: Find Out Here + Other Payment Methods

Top 5 UK payment gateways to choose for 2023

Stripe vs PayPal: Which Payment Method to Choose as a Dropshipper

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