What a payment gateway is and what it means for tech trend followers

According to a recent eCommerce industry report, 58% of South African online shoppers indicated that they would prefer to pay with a credit or debit card. In the survey, consumers also revealed that a trustworthy payment method would encourage them to do more shopping online.

If you’re starting a web-based store or looking to expand your traditional business online, you should offer your customers a safe payment option in order to gain their trust and confidence in your brand. Sure, customers are shopping online for a variety of reasons – convenience and better prices – but they also want the peace of mind that every transaction will be processed securely upon checkout.

So what is a payment gateway?

Before you can enable credit or debit card sales, you need to set up a payment gateway for your eCommerce store. This is a service that safely transmits personal information of shoppers between the eCommerce website and merchant account after a transaction was made. A merchant account is an online account that temporarily stores funds until they are deposited in your business bank account.

The magic behind that checkout button

When a shopper purchases a product on your eCommerce store, their billing details are converted into code and forwarded to a payment gateway for processing. The designated payment gateway sends the information to the merchant’s bank, who will pass it onto the card company to authorise the transaction. Once this is done, the card provider will notify the bank on whether the request was approved or not.

The payment gateway returns the transaction information to the eCommerce website and the customer is notified. Although the entire authorisation process happens almost instantly, it can take a while before the bank will settle the funds and reflect them in the seller’s account.

How will this technology influence online businesses?

With consumers becoming more and more digitally savvy, the payments industry is rapidly evolving and will have an impact on how merchants conduct business. Mobile commerce is still predicted as the next big thing in online trading and as such, payment gateway services have made it possible for online merchants to assimilate mobile payments.

Technology is one of the biggest opportunities for traditional stores but it can also be one of their biggest challenges. When collaborating directly with payment processors, many smaller online businesses can find it difficult to keep pace with changing security trends. A payment gateway eliminates the merchant-processor relationship, while giving eCommerce stores a greater level of freedom, automation of payment processing and improved security features.

PayU, who is not only one of the world’s leading online payment service providers but also SA’s largest payment gateway, uses double firewall protection and SSL encryption as well as 3D Secure, a programme that helps prevents credit card fraud.

The constant development of payment technologies thus not only influences customer expectations, but also the way transactions are carried out, and businesses that adapt to these changing trends will gain a competitive advantage in the South African eCommerce landscape.