What does payment gateway mean? How does it work?

With the unstoppable rise of e-commerce, online businesses have raised to the occasion of being a significant part of the global economy. As behaving like offline stores, these businesses also need the same customer journeys, even faster and easier, to achieve product-market fit. To provide that, they need to be working with the best partners besides having a satisfying inventory. That led financial industry to create an online presence as well. Banks have built applications, websites and online payment options to reach their customers via online businesses as well. This has led to a new era of partnerships. Payment gateways were also a part of this revolution.

What is a payment gateway?

A payment gateway is a merchant service provided by an e-commerce application service provider that authorizes credit card or direct payments processing for e-businesses, online retailers, bricks and clicks, or traditional brick and mortar.

Payment gateways help consumers to easily make payments to merchants or easily send money to their friends, family or any other associates. Keeping the data and reporting regularly, payment gateways also help merchants to grow their customer base and reach alike consumers as well.

“BI Intelligence, Business Insider’s premium research service, expects the U.S. online processing market (from which gateways pull a chunk of their revenue), will grow to $17.5 billion in 2020, thanks in large part to a surge in online shopping.”

How do they work?

First, the customer decides what to purchase and adds it to her/his cart or goes to pay desk. Merchant securely transfers order information to the payment gateway. Then the transaction is to the issuing bank or card. Payment gateway accordingly sends a message to the merchant. The banks settles the money with the payment gateway and the payment gateways settles the money to the merchant. Some systems like MenaPay doesn’t require any banks in between and connects merchants directly with their customers which makes everything easier for merchants by minimizing the waiting time for cashing out the revenue.

Also, payment gateways allow you to make P2P (person-to-person, peer-to-peer) transactions as well. By making money transfer easier, you can send/receive money from any peer you like. With the rise of online banking, individuals also needed to make transactions easily. Payment gateways opened the door for that.

How can payment gateways make your daily life easier?

Payment gateways can conquer every aspect of daily life. In online and offline areas, these kind of financial technologies could be beneficial to both consumers and merchants;

For consumers,

• Easy payment:

By using an online payment gateway, you can leave the house without a wallet. Once you subscribe a credit card or transact money to your account, you will not need to carry cash or many credit cards anymore. Only by using your mobile phone, you can do any transaction you want, you can pay bills, purchase souvenirs and even book flights. Payment gateways allow you to make payments much easier in every aspect of your life.

• Bill splitting:

If you’re bored of trying to split the bill after a delightful dinner, payment gateways might be your solution. Once a group of friends use the same platform, you can easily make your payments via the platform so that you won’t have to argue anymore. Also, if you’re going abroad and booked your rooms, flights etc. with your friends, you can also make separate payments by using the same payment gateway.

• Expense tracking:

With daily/monthly reports, you can easily track your expenses and how much money you spend on each category periodically. Following your expenses may help you save money or make some arrangements to survive longer :)

• Multiple payments:

With the growth of online businesses, we are able to sit in front of our computers and buy food, clothes, gifts and everything. Payment gateways make the payment process easier. By having an account, you can buy all you want and pay with only one click without the bother of entering credit card information each time you make a purchase.

For merchants,

• Enforcement:

A payment gateway secures your payment processing. Keeping the data of the customer secure creates trust between you and your customers. Especially, blockchain technology makes it even more secure. By preferring a blockchain based payment gateway, both you and your consumers can secure their money.

• Easy settlement:

If your customers top up to their account via cash, you do not have to deal with banks anymore if your payment gateway does direct purchases without issuing a bank. So, that gives you the chance to cash out your money without a long settlement time.

• Accurate data:

By using a single platform and acquiring customers via that platform can help you monetize your growth, understand your customer and iterate your business according to that data. Payment gateways provide a clear consumer data for you in respect to customer rights for sure.

• Recurring payments:

If you have a subscription business, payment gateways are the best way to acquire customers. By choosing a payment gateway that provides a recurring feature, you can make sure that your customers stay as long as possible.