Every merchant who deals with online payments in one way or another has heard of a payment gateway. But if you’re a newbie to e-commerce, we’ll be glad to provide you with a deeper understanding of what exactly a payment gateway is and what role it plays in payment processing.
A payment gateway is a technology that allows merchants to accept and process online transactions securely. We can compare it to a regular POS terminal that sellers use for accepting debit/credit cards in brick-and-mortar stores. Like a POS terminal, a gateway is designed to transmit payment information between all parties involved in a transaction but is used specifically for processing online payments. Thus, every retailer who wants to accept online payments needs a secure gateway that will protect their customers’ sensitive information from fraud by implying data security tools such as encryption, SSL, and tokenisation.
Let's find out exactly how the gateway is involved in an online transaction:
A consumer selects the product and makes an order on a merchant’s website. They select a preferred payment method and enter debit/credit card details on a checkout page.
A gateway receives the information, encrypts it, and sends an authorisation request to the acquiring bank.
The acquiring bank sends a request to the card network (Visa, Mastercard, or other) serving the cardholder.
The card network contacts a consumer’s issuing bank to check if the card is valid and if there’re enough funds to withdraw.
The issuer authorises the transaction and sends a confirmation to the acquiring bank via a gateway.
Payment gateway informs the consumer of a successful transaction. After this, the funds will be debited from the consumer's account and credited to the merchant's account.
A payment gateway can be described as an intermediary service that processes electronic transactions and routes payment information between merchants, banks, and other processing participants through a single communication protocol. It accompanies each transaction from start to finish, ensuring the protection of card data and preventing possible leaks or fraudsters. Hence, the functionality of a payment gateway includes the following:
Authentication
Customer’s data encryption
Routing the data between processing participants (processor, acquirer, issuer, card network)
Notification about approval/rejection of the transaction.
Payment gateway features are indispensable for any e-commerce business as their main purpose is to prevent potential risks associated with electronic transactions.
Marketplaces are a special category of e-commerce because they are vastly different and require an individual approach to integrating payment solutions. Not all gateways are suitable for marketplace integration. Here you need to consider plenty of factors, such as the type of marketplace, the products it sells, the regions it covers, the method of delivery, and others. Here’s a couple of examples.
Let’s take a single-vendor marketplace with only one seller offering their products. Three participants are involved in the sales process: the seller, the buyer, and the intermediary between them (PSP, acquirer, etc.). Thus, when setting up online payment processing for a single-vendor marketplace, the retailer should only consider the local payment preferences of consumers and integrate the solution tailored to their needs with the help of a service provider. This is usually just one country and currency, making integration much more straightforward. But in the case of a multi-vendor marketplace, things get more complicated.
A multi-vendor marketplace is a complex chain of interaction, where the marketplace itself acts as an intermediary between the sellers who place their products on the platform and buyers. In parallel, the marketplace can sell its own products. The payout system is different too. When a customer makes a purchase via the platform, the marketplace collects funds and then makes payouts to sellers, first charging them fees. The larger the marketplace is, the more currencies and payment methods should be connected to meet the needs of consumers.
Despite the marketplace type, there’s only one thing that makes it trustworthy — the high security of payment processing. This is what exactly payment gateways are responsible for.
Ease of integration
Improved security
Fraud detection and prevention
Checkout customisation
Smooth shopping experience for customers
Favorable conditions for global expansion
It usually doesn't take long to integrate a payment gateway into a marketplace if you partner with a payment service provider (PSP) — a third-party company offering ready-made technical solutions for any type and size of the marketplace.
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When you’re committed to creating a secure and convenient payment infrastructure, it’s time to choose a solution that best suits your marketplace. As we mentioned above, not every service company can fulfill the requirements of buyers, sellers, and the marketplace at the same time, so it’s very important to find the service provider (PSP) you can trust to process your payments and payouts.
When choosing a relevant processing solution for the marketplace, we recommend considering several criteria:
Chargebacks are very common on marketplaces because when shopping online, buyers often make the wrong choice, or the product doesn’t meet their expectations. To avoid potential problems with unpaid money, choose a processor that handles chargebacks.
Chargebacks are very common on marketplaces because when shopping online, buyers often make the wrong choice, or the product doesn’t meet their expectations. To avoid potential problems with unpaid money, choose a processor that handles chargebacks.
Multicurrency is essential for large international marketplaces delivering goods around the world. The same goes for payment methods, as buyers’ preferences vary greatly from country to country. Let your customers choose exactly how they want to pay: debit/credit card, bank transfer, Apple Pay, e-wallet, crypto wallet, or another method.
Since payment gateway plays a significant role in data protection, working with an unprotected tool can entail negative consequences in the form of data leakage and fraud. Therefore, the integration of a PCI-compliant payment gateway is crucial for the smooth running of your business. Check a PSP’s licenses and documentation before concluding a contract.
A well-known fact is that running a marketplace means dealing with plenty of merchants and hundreds of transactions per day. Luckily, PSPs know business needs and provide merchant management solutions for convenient and systematised monitoring operations. Plus, you can benefit from customised report formats and get detailed turnover, demographic, and competition reports.
It’s difficult to underestimate the functionality of a payment gateway for marketplaces as the security of transactions is of paramount importance to customers shopping online. By providing them with maximum data protection on your marketplace, you will increase loyalty to your company and boost your revenue accordingly. At Corefy, we offer much more than just a payment gateway. Take your marketplace to a new level with our e-commerce management tools. Find out what we can do for you!
