To leverage the payment system to your business’s advantage, comprehending the payment flow is paramount. The intricate nature of the payments flow, involving numerous steps and stakeholders, can appear daunting. However, fear not, as we are here to provide guidance.

In this article, we’ll zero in on the initial phase of the payment flow: the payment gateway. By the end of this read, you’ll possess a comprehensive understanding of what a payment gateway entails, the critical factors to contemplate when selecting one tailored to your Australian business, and the beneficial outcomes of opting for a payment gateway integrated into a unified platform.

What is a payment gateway?

At the forefront of the payment process, the payment gateway serves as a facilitator, enabling businesses to initiate payments seamlessly. Whether in digital environments or face-to-face transactions, the payment gateway functions as a web server linked to businesses.

Businesses have the option to select a payment gateway either from a bank or from a provider capable of interfacing with one or multiple payment processors.

Types of payment gateways in Australia

Various businesses have distinct requirements, and this extends to their choice of payment gateways.

Online payment gateways cater to websites and applications, offering the fundamental function of initiating payments. However, they can diverge in terms of functionalities, supported channels, and features provided. To optimize the benefits derived from a payment gateway, it’s imperative to discern your business needs and select one that aligns seamlessly with your operations.

Consider the following example to illustrate how specific needs can influence your payment gateway selection: a subscription-based business necessitates a gateway that supports recurring payments, whereas Software as a Service (SaaS) providers might require one that offers flexible billing options. Furthermore, high-risk industries like airlines or gambling may require a payment gateway with a robust risk management framework tailored to their unique requirements.

The payment gateway in the transaction flow

In the brief moments it takes for a payment to be processed, an entire ecosystem unfolds behind the scenes. Below, you can explore the comprehensive transaction flow. Keep in mind that this sequence commences with the payment gateway.

Here’s a simplified breakdown of how the payments flow:

  1. Customer makes a purchase, and the business sends the customer’s payment data to the payment gateway.
  2. The payment gateway forwards the data to the payment processor, who then shares it with the card scheme.
  3. The card scheme passes the information to the card issuer, which conducts checks to authorize or decline the transaction.
  4. The decision regarding the transaction is communicated back through the card scheme, payment processor, and gateway to both the business and the customer.
  5. If the payment is approved, the funds transfer from the customer’s bank to the card scheme and then to the business’s bank account.

Choosing the best payment gateway

There are several factors to take into consideration when choosing a suitable payment gateway, such as pricing, security and payment options. 

Pricing
In the payment gateway market, various pricing models exist, and cost-saving is often a top priority for businesses. Selecting a gateway with a pricing model that aligns with your business requirements is a crucial step.

Some providers impose a percentage-based fee, while others apply a fixed fee per transaction. For businesses with a high Average Transaction Value (ATV), a fixed fee might be more economical.

Additionally, it’s essential to consider that certain gateways levy one-time charges for setup or integration fees. They may also offer supplementary services such as risk management or authorization optimization, which could impact the overall cost but contribute value to your business.

Security and compliance
Ensuring the safety of your customers and their information should be a paramount concern for your business. Payment gateways maintain specific certifications and adhere to measures designed to safeguard payment data. The essential certifications and standards you should expect include:

  • Payment Card Industry Data Security Standard (PCI DSS): Crucial for businesses that accept credit card payments, PCI DSS mandates adherence to 12 security standards when handling credit card data. These standards encompass the acceptance, transmission, processing, and storage of credit card information.
  • Compliance with applicable privacy laws: Businesses must comply with relevant privacy laws to safeguard customer data and ensure its lawful and ethical use.

For businesses that accept payments in Europe, adherence to additional regulations is imperative:

  • Payment Services Directive 3 (PSD3): This regulation focuses on payment authentication. Although it has not yet been implemented, businesses must prepare to comply once enacted, ensuring adherence to PSD2 requirements in the interim.
  • General Data Protection Regulation (GDPR): GDPR mandates that personal data is only utilized for purposes for which the customer has provided consent. This regulation aims to safeguard the privacy and rights of individuals within the European Union (EU).

International payments
Before venturing into accepting international payments, it’s imperative for your business to ensure that your chosen payment gateway supports this capability. There are various methods of accepting international payments, such as cross-border transactions or utilizing international payment networks, which often yield higher authorization rates.

Equally important is offering your customers their preferred payment methods. Therefore, it’s essential that your payment gateway can accommodate relevant payment methods to mitigate the risk of high rates of abandoned shopping carts and disgruntled customers.

Furthermore, disparities in regulations between countries must be considered. While Australia maintains specific rules on authentication, Japan is poised to implement new 3DS regulations by 2025. Hence, your chosen payment gateway should adhere to local regulations in the regions where you intend to accept payments.

Differences between a payment gateway and a payment processor

The distinction between ‘payment processor’ and ‘payment gateway’ is often blurred, but understanding their roles is crucial in the payments ecosystem.

As mentioned earlier, a payment gateway facilitates the initiation of payments for businesses.

On the other hand, a payment processor operates in the background, handling payments on behalf of a business’s bank. It ensures that processed payments adhere to local regulations and standards.

Once the payment gateway gathers information, the payment processor takes over. It communicates this data directly to the payment network, authorizes, clears, and captures the transaction.

Recall the payment flow we discussed earlier: the payment gateway initiates the process by collecting data and passing it forward. In the subsequent step, the payment processor receives this data and coordinates with the card schemes and the business’s bank to approve the payment.

While a payment gateway and payment processor can function as separate systems, integrating both into a single platform can enhance the efficiency and reliability of the payment process.

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