What is a payment gateway?
A payment gateway is a software application that enables the processing of online transactions. It’s the first step in the online payment process, and is considered crucial to the success of eCommerce businesses.
By securely transmitting a customer’s payment information between a business’s online store or mobile app and the acquiring account, a payment gateway is what enables secure online payments. It’s an essential tool that allows online merchants to handle payment processing seamlessly and provide a secure checkout for their customers.
Evolution of payment gateways
The concept of payment gateways dates back to the late 1990s—what we’d call the early days of eCommerce. Initially, payment processing was done by manually entering credit card details, which was a time-consuming system that was prone to errors. It was also not the most secure way of handling sensitive information.
Largely due in part to the development of specific technologies, payment gateways have become more streamlined and efficient, for both business owners and consumers. Now, there are many payment gateway providers, each offering a range of features and functionalities to suit different business needs.
These providers can be broken down into four main types: hosted payment gateways, self-hosted payment gateways, API hosted payment gateways and bank integration gateways.
Why are payment gateways important?
A payment gateway is an essential component of any eCommerce website because it enables secure online transactions. Simply put—without them, online payments wouldn’t be possible. They also ensure that a customer’s payment information is encrypted and transferred securely between the customer's bank and the merchant's bank. It's thanks to the technology of payment gateways that online shopping has increased in popularity, allowing businesses to accept electronic payments online and build their customer base on a global scale.
Key components of payment gateways
There are several components that make up the foundations of payments gateway technology, ensuring each part of the software functions efficiently. These include:
Encryption technology: This allows the software to secure sensitive information including credit card details, as well as ID numbers.
Integrations: These give businesses compatibility with various payment methods—from apps like PayPal to credit cards and even digital currencies.
Real-time processing: Payment gateway technology provides seamless, convenient and speedy processing of payments in real-time.
Fraud detection: An important element that allows business to detect false payments and prevent fraud.
User-friendly interface: Not all business owners are tech savants, but thankfully most payment gateways are easy-to-use, allowing them to handle transactions seamlessly while focusing on other areas of their businesses.
Benefits of using payment gateways
Payment gateway technology has evolved over the years and now provides some of the following benefits to online business owners:
01. Increased sales
The more convenient it is for customers to buy on line, the more likely they are to complete a purchase and make repeat sales.
02. Reduced risk
Improved security processes and technology make payment gateways less susceptible to fraud and chargebacks made in error. The more trusted the gateways are, the more likely online consumers are to make purchases. It also helps businesses build and maintain brand trust.
03. Improved customer experience
A seamless checkout process is likely to create a more positive opinion of a brand by online consumers, encouraging them to return.
04. Access to real-time transaction data
This allows businesses to keep up with their accounts in real-time, allowing them to respond smarter and faster to increased demand.
05. Ability to accept multiple payments
Being able to accept different payment types, currencies and customers from around the world, expands the reach of a company and opens up larger numbers of consumers for them.
Examples of popular payment gateways
Some of the most popular payment gateway providers used by businesses today include PayPal, Stripe, Authorize and Square. These companies offer a range of services and features to suit different business needs, such as fraud detection and prevention, recurring billing and mobile payments.
Business owners using Wix Payment Gateways can choose from over 70 payment gateway solutions worldwide. These provide intuitive transactions, allowing customers in any location multiple payment options to choose from, and giving business owners the tools to manage transactions from the payments dashboard.
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Best practices for using payment gateways
Payment gateways are an essential part of running any eCommerce business, enabling secure online transactions and improving overall customer experience. By choosing a reliable payment gateway provider and preventing fraud, businesses can increase sales and expand their customer base. When it comes to choosing the right payment gateway provider its worth considering the following:
Choose a payment gateway that integrates with your eCommerce website.
Ensure that your payment gateway is compliant with PCI (The Payment Card Industry) to protect customer data.
Offer multiple payment options to cater to different customer preferences, behaviors and locations.
Provide clear and concise instructions to users during the checkout process.
Regularly monitor transaction data for any unusual activity.
Challenges of using a payment gateway as a business owner
One of the biggest challenges associated with payment gateways is the risk of fraud and chargebacks. Businesses need to implement measures to detect and prevent this, such as using fraud detection software and verifying customer identities.
Build an eCommerce site on Wix and you'll get the benefits of 24/7 security monitoring and cyber attack prevention.
Another common challenge is setting up payment gateways within eCommerce platforms, which can be complex and time-consuming. That’s why we recommend using platforms with integrated tools, like Wix Payments, as these provide ready to go solutions for business owners.