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Payment Gateway: What It Is, How It Works

In the digital landscape of commerce, the facilitator behind secure online transactions is the payment gateway. Specifically in Australia, comprehending the nuances of this system is important for businesses transacting via digital payments.

Let’s cover the essence of a payment gateway, its functionality, distinguishing it from payment processors, and explore some illustrative examples, shedding light on its significance in the realm of online transactions.

What is a Payment Gateway?

Merchants utilise payment gateways as a technological solution to facilitate customer debit or credit card transactions. This term covers not just the physical card-reading apparatuses present in traditional retail outlets – such as credit-card scanners and EFTPOS units but also the online payment processing platforms found in e-commerce stores.

Moreover, brick-and-mortar payment gateways have expanded their scope to incorporate phone-based payments, integrating QR codes or Near Field Communication (NFC) technology into their systems. Some businesses, in particular, offer their QR payment channels by posting the associated placard at the counter, guiding customers to “scan me!” 

How Payment Gateways Work

The payment gateway plays a noted role in the electronic payment processing system, serving as the frontend technology responsible for transmitting customer information to the merchant-acquiring bank for transaction processing.

In previous times, terminals accepted credit cards through magnetic strips and necessitated paper signatures from customers.

Advancements in chip technology led to the gradual reduction of hang signatures as a security device, replaced by a PIN entered directly into the payment gateway hardware. The accuracy of this entered identification number is validated through the Luhn algorithm. Presently, contactless purchases have gained popularity, with many customers opting to use their smartphones as payment devices instead of traditional plastic credit cards. As such, some banks are capitalising on the trend to phase out banknotes or coins as payment mediums.

The architecture of a payment gateway differs based on whether it operates as an in-store gateway or an online payment portal. Online payment gateways rely on application programming interfaces (APIs) enabling communication between the respective website and the underlying payment processing network. In contrast, in-store payment gateways utilise a Point of Sale (POS) terminal that electronically connects to the payment processing network via either a phone line or an internet connection.

What is a Payment Processor?

A payment processor refers to a company or service that aids in electronic transactions, overseeing processes like credit card payments, debit card transactions, or digital wallet payments between businesses and their clientele. Their role involves securely and promptly enabling businesses to accept diverse payment methods while facilitating the seamless transfer of funds from the customer’s account to the business’s account.

Payment Gateways and Payment Processors

A payment gateway differs from a payment processor, which acts as a conduit between the customer’s bank and the merchant account, enabling the physical transfer of funds.

The transaction consists of two primary stages: the payment gateway gathers customer payment details, which the payment processor uses for communicating with the customer’s bank and the merchant account, completing the transfer by debiting one account and crediting the other.

Payment Gateway Examples

Merchants have the option to access payment gateway systems via partnerships with merchant acquiring banks or by utilising their proprietary payment gateway system. Major financial institutions like ANZ Bank provide advanced payment gateways alongside their merchant acquiring bank services.

Ultimately, merchants have a range of payment gateway technologies to choose from, provided they align with the merchant acquiring bank used for payment processing.

Let’s have a look at some notable Aussie payment gateway providers.

SecurePay

Designed and managed by AusPost, SecurePay offers an online payment platform and a combined payment gateway/merchant account system. They are also integrated into notable ecommerce platforms such as Shopify, Adobe Business Catalyst, and WooCommerce, and can also be set up with existing business accounts at any Australian bank.   

Square

Available at SquareUp.com, Square offers a comprehensive suite of payment solutions, enabling businesses to accept payments in various forms. Merchants enrolled with Square will have a chance to use its own proprietary payment equipment networked to a single app, such as card readers attached to a cellphone and EFTPOS terminals. Square also offers inventory management and payroll services.

eWay

Founded by Matt Bullock in 1998, eWay offers secure merchant accounts and seamless and secure payment processes while integrated into many ecommerce platforms out on the market today. Merchants have a choice of three payment gateway plans, offering different charges per transaction and monthly service billings but also a certain number of free transactions per month.  

FAQs

What is the pricing structure for a payment gateway?

Payment gateways usually impose a mix of initial setup charges, a fixed monthly fee, and a small fee per transaction. Some gateways might also levy a percentage of each purchase. For instance, Square applies 1.9 per cent for every tap or swipe for transactions using all major credit cards or EFTPOS deals. Meanwhile, SecurePay levies 1.75 per cent for domestic transactions and 2.5 per cent for international transactions plus a flat 30-cent transaction charge (GST inclusive). Additional fees may apply for equipment and setup.

What are white-label payment gateways?

A white label payment gateway refers to a customisable branded gateway that merchants can tailor to match their preferences. This feature allows businesses to accept payments through third-party services while maintaining their own name and brand identity.

Can I build my own payment gateway?

Although conceiving a payment gateway from scratch is feasible, the expense incurred might not justify the effort. Tech consultancy Softjourn claims the cost of building a basic gateway to process credit and debit card transactions could amount to a quarter of a million dollars. This estimation doesn’t even cover the complexities associated with international transactions, foreign currencies, and regulatory compliance.

Conclusion

The intricacies of a digital society require rapid adaptation, especially when it comes to how payments are done. Australians know this fact really well, when you consider that online sales in the country generated $29 billion in earnings last year. Entrepreneurs can make it happen by setting up payment gateways to better serve their customers.

DISCLAIMER: This article is for informational purposes only and is not meant to supersede official business advice. BARTERCARD is not affiliated with any Australian payment gateway service.

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