man paying with credit card wirelessly
With most consumers choosing not to carry cash, businesses should invest in a payment gateway to accept credit card payments. — Getty Images/PavelVinnik

Not nearly as many consumers walk around with cash on-hand as they used to. In fact, a survey by U.S. Bank found that only 50% of people carry cash with them and only do so less than half of the time they’re out. When they do carry cash, “nearly half of consumers surveyed keep less than $20 on hand, and 76% keep less than $50.”

It’s obvious that e-commerce sites must have a way to accept credit and debit payments, but today, even brick-and-mortars should invest in the tech that supports these payment methods. Below, we explain how payment gateways work and what their security benefits are.

What is a payment gateway?

A payment gateway is a technology that helps merchants accept payments via customers’ credit and debit cards. They serve not only e-commerce shops but also businesses with physical stores by facilitating secure digital transactions. If you invest in a payment gateway, you’re not only protecting your business from liabilities, you’re also welcoming more customers by accommodating all payment methods.

[Read: 4 Things to Consider Before Accepting Mobile Credit Card Payments]

How does a payment gateway work?

The payment gateway process is relatively simple—especially when you invest in the right tech or service. Here are the steps of the entire process:

  1. The customer submits an order. This can be online or in a brick-and-mortar store, in which case you’d be submitting the order for them.
  2. Data is encrypted via web browser. The customer’s information is securely sent from their browser (if online shopping) or yours to the merchant’s web server via SSL (Secure Socket Layer) encryption.
  3. The merchant sends transaction data to payment gateway. This is also done via SSL encryption.
  4. The gateway sends the transaction to the payment processor. The transaction details are sent to the payment processor associated with the merchant’s acquiring bank.
  5. The payment processor sends the transaction to the card association. Examples of card associations include VISA and Mastercard.
  6. The credit card-issuing bank verifies the transaction. The bank will receive the request and send a response code for the transaction if approved. If rejected, the bank will provide an explanation, like insufficient funds.
  7. The issuing bank sends a response code to the payment processor.
  8. The payment processor sends the code to the payment gateway.
  9. The payment gateway sends the code to the merchant and cardholder, thus completing the transaction.

Despite its many steps, the entire payment gateway process only takes just a few short seconds. It is both a secure and seamless way to accept payments from customers, whether they interact with your business online or in person.

[Read: Cashless vs. Contactless Payments: Understanding the Difference]

Not nearly as many consumers walk around with cash on-hand as they used to.

Is the payment gateway process secure?

One of the biggest perks of using a payment gateway is its high security. In fact, according to Pixelmattic, major card associations have a set of rules and security standards—called Payment Card Industry – Data Security Standard (PCI-DSS or PCI)—that must be followed by any person or organization that has access to sensitive card information. All payment gateways, in turn, must meet these requirements as well—the service company cannot communicate with payment processors until they are approved. Therefore, as a merchant using a gateway for your company, you’ll be protected from any liabilities or fraudulent transactions.

Payment gateways can also be integrated with most websites. When a consumer shops online and “checks out” with the items in their digital “cart,” they are shown the total amount due and can then enter their credit/debit information. The payment gateway encrypts and stores this sensitive data. Most online orders are fulfilled using an HTTPS protocol, adding an extra layer of security for data transfers.

[Read: 3 Ways to Accept Credit Card Payments]

Running a successful business today requires you to purchase the right equipment. If you’re not willing to accommodate consumers’ needs and protect their personal data, they won’t be as quick to trust you with their business. By investing in a payment gateway, you’re looking out for both your company and its customers.

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

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Published January 24, 2020