What Are Payment Gateways?
In the rapidly evolving world of digital commerce, understanding the mechanisms of payment systems is not just beneficial, but essential. One such mechanism that often mystifies people is the payment gateway.
Understanding Payment Gateways At its core, a payment gateway is a technology used to facilitate online transactions. It serves as the digital equivalent of a physical point-of-sale terminal found in most retail outlets. A payment gateway authorizes the transfer of funds between buyers and sellers in online transactions.
When a customer places an order from an online store, the payment gateway performs several tasks to finalize the transaction:
- Encryption: The web browser encrypts the data to be sent between it and the vendor's web server. The gateway then sends the transaction data to the payment processor utilized by the vendor's acquiring bank.
- Authorization Request: The payment processor sends the transaction data to a card association, which routes the transaction to the correct card issuing bank for authorization.
- Filling the Order: The issuer sends a response back to the processor with a response code. This response code is used to communicate the approval or denial of the payment. The processor then forwards the response to the payment gateway. If the transaction is approved, the merchant can then fulfill the order.
The Importance of Payment Gateways Payment gateways play a crucial role in the Pay By Text transaction process, which is a way to ensure customer trust and secure financial transactions. They are the heart of mobile and e-commerce as they enable transactions to be carried out seamlessly and securely.
According to a report by Grand View Research, the global payment gateway market size was valued at USD 18.21 billion in 2020 and is expected to expand at a compound annual growth rate (CAGR) of 21.7% from 2021 to 2028. This growth is attributed to the increasing adoption of payment gateways in the e-commerce industry and the growing trend towards mobile commerce.
Payment Gateways and Mobile Payments The advent of mobile commerce has necessitated the evolution of payment gateways. Today, they are designed to accommodate mobile payments and text-based transactions, ensuring that whether a customer is swiping their card in a physical store (card present), paying through their mobile device, or using a text-based payment service, the transaction is processed securely and efficiently.
A study by Statista indicates that the number of mobile payment users is expected to surpass 1 billion worldwide in 2023. This highlights the growing importance of mobile-friendly payment gateways in the digital commerce landscape.
Understanding payment gateways is a crucial step towards preparing your business for the digital age. With secure, efficient, and versatile payment gateways, your business can stay ahead of the curve in the rapidly evolving landscape of digital commerce.
Remember, whether it's real-time payments, mobile payments, or text-based transactions, a robust payment gateway is your key to secure and efficient transactions.