Payment Gateway overview

A payment gateway is the interface between a provider of products or services and the bank or credit card provider. Financial transactions are processed securely through a payment gateway, and recurring payments for subscriptions are also processed through a payment gateway. The gateway is responsible to capture the data, to ensure that the funds are available, and to pay the merchant.

Payment Gateway – what is this?

A payment gateway is a technology that captures payment data from the customer and forwards it to the provider of a product or service, and then sends the acceptance or rejection of the payment back to the customer. Such a technology is thus a key component of the electronic payment processing system, as it is responsible for sending customer information to the merchant’s acquiring bank. A payment gateway provider such as Billwerk+ Payments securely validates credit or debit card data, ensures creditworthiness, and finally enables payment. It acts as an interface between the merchant’s website and its acquirer, encrypting sensitive card details and ensuring that the information is securely passed from the customer through the merchant to the acquiring bank.

The importance of a payment gateway

As the past few years have shown, online commerce is becoming an increasingly important part of many industries, making a sophisticated and secure payment system essential – especially in the subscription business. A payment gateway thus acts as the key to an easy and successful transaction for online (recurring) payments. The high number and diverse forms of gateways play an essential role in the economics of e-commerce and the subscription business, because payment gateways are mandatory for every online purchase, as transactions cannot be completed without them. For recurring payments in subscription business models, the payment gateway is of particularly high importance due to the automated process.

The right choice

Security is essential, as bank data and financial information are provided by users. Therefore, great care must be taken when selecting a payment gateway that must provide a high level of security. Payment gateways must adhere to a set of rules and security standards known as the Data Security Standard (PCI-DSS or PCI). Costs and the service fees included should always be kept in mind on top of that.

To increase the customer experience and sales performance of the website, it is advisable to choose different payment methods – the more options, the better the customer acceptance. The location of the payment transaction must also be taken into account. In order for the customer to complete the purchase, some providers allow the transaction to be routed directly on the server side (which offers the products and services) or to the third-party sites.

The impact on the churn rate

The choice of the right payment gateway also has a major impact on customer satisfaction and thus on the churn rate of a subscription company. Churn refers to customer attrition that occurs when subscribers discontinue their relationship with a company, product, or service.

Frequent errors in the transaction process result in customers dropping out. Affected companies with a high churn rate can (have) the error types in the (recurring) payment process analyzed. Credit card errors are often responsible for a failed transaction process. However, these can be quickly corrected by the provider and the churn rate can be reduced again.

The Payment Gateway Transaction Process

The process involved in a transaction via a payment gateway offers the highest level of security. When a customer orders a product from a merchant, the payment gateway performs a variety of tasks to process the transaction. Once the customer has made a purchase, the payment process is initiated on a payment page on the company’s own website or that of a payment provider. The sensitive payment data (e.g., the card verification number of a credit card) is transmitted to the bank in encrypted form via a payment gateway token.

The requesting bank then securely sends the information to the card schemes or payment provider. These perform another level of fraud screening and then send the payment data to the issuing bank. The issuing bank authorizes the transaction after performing a fraud check.

The approved or declined payment message is then transmitted back to the buyer. The acquiring bank sends the approved or declined payment message back to the payment gateway, which in turn forwards the message to the merchant. If the payment is approved, the buyer receives the payment amount. Depositing amounts to the merchant’s account is done depending on the agreement between the merchant and the payment gateway provider.

Conclusion: Payment gateway indispensable in subscription business and online retailing

The payment gateway acts as an intermediary between the customer and the merchant, ensuring that the transaction is secure and fast. As an intermediary in payment processing, the gateway manages the customer’s sensitive card data between the buyer and the merchant. The payment gateway is an important component in the subscription business and in e-commerce. It is used to ensure security for the customer and the merchant, and to provide a satisfactory user experience for automatic and fast online shopping.

Payment gateways integrated into Billwerk+ for recurring payments:

Billwerk+ is the reliable & compliant payments and subscription management platform for European start-ups, SME, large & Global Enterprises.

Billwerk+ reliably automates, orchestrates and streamlines all recurring business processes for you. The platform supports you sustainably in growing and scaling your subscription business model and payments.