Payment Gateways
Payment gateways enable online merchants to accept payments by credit-card (and sometimes other payment methods) from their customers.
When the customer enters their card details into the merchants payment page, and hits the pay now button, the gateway sends the card details to the merchants bank for processing. The merchants bank, in turn, submits the details to the credit-card company for authorisation, and to the card issuers bank (i.e. the card holders bank) for payment.
There are many different types of payment gateway services including those that support voice and phone transactions as well as online transactions. But from the point of view of online merchants, they fall into three different groups: in-house, hosted and peer-to-peer.
In-house
Larger online merchants and businesses often maintain their own payments page on the same server as rest of the pages that make up the company’s online shop. The page is linked to a payment gateway service. So when the customer completes the checkout process, their payments information can be sent, via secure online links, to the payments gateway.
The gateway will in turn, submit the transaction to a bank, for authorization, clearance and eventual settlement.
This allows the company to keep the customers card details, so that, for example the next time the customer visits their transaction can be processed much more swiftly. It also enables the payments page to have the same design, look and feel as the rest of the company’s web-site.
Of course this approach has inherent security risks if the database holding the customers card details is not totally secure.
Hosted
Smaller businesses are often encouraged to use a hosted payments page to process their customers online payments. This means that the page lives on the server hosted, i.e. owned and operated by the payments gateway company.
This means that when an online customer reaches the point in the checkout when they need to put in their card details they are re-directed or switched through to the hosted payments page. The online merchant never sees the card details and so the security risks to customers data are greatly reduced.
In Australia, the ANZ is perhaps the best-known bank provider of a hosted payment gateway service, with its eGate service.
Peer-to-peer
A third group of payment gateways are the so-called peer-to-peer services.
PayPal is perhaps the best known of these, but others include Australia’s Paymate and Poli, Moneybookers and AlertPay. These services typically require users to be members and have internal accounts into and from which they transfer funds.
Once the account is funded it can be used for transactions with other online users of the same peer-to-peer service.
PCI-DSS
Any business that captures or stores credit-card numbers is required to comply with the Payment Card Industry Data Security Standards (PCI-DSS).
International payments
Some payment gateway services operate internationally, signing-up merchants in any country, such as Authorize.Net.
But international transactions can be very complicated if they are denominated in a different currency. Exchange rates move about and transferring funds between countries, even between banks, can still be a very slow and cumbersome process. Hence most payment gateways offer only limited support for transactions in different currencies.
Direct credit/Internet banking
Many Australian businesses nowadays publish their bank system and account numbers on their invoices so that customers can key in those details to the ‘Pay Anyone’ facility within their Internet banking service. Whilst very useful in consumer transactions, this system has limited use in business to business transactions, because of the limited scope for remittance information available in the standard payments message used for switching transactions between banks.
Billing Services
Billing services such as those operated by BPay or Australia Post also offer both online and offline merchants with a way to get paid that need not involve any paper handling at all.
More information
There are a wide variety of payment gateways available in the Australasian marketplace. To find local payment gateway vendors, including contact details, check out the relevant section of our Australian eCommerce Directory.
For a more comprehensive explanation check out Wikipedia’s entry.