Global retail ecommerce sales are expected to exceed $7.88 trillion by 2028. To take advantage of this trend, businesses that currently accept customer payments online, or plan to do so in the future, should be proactive in building and managing their own payments ecosystem. This begins with understanding the key components that power online payments.

A payment gateway is an important component of ecommerce payment processing that provides a flexible, secure, and efficient platform for online transactions. Payment gateways offer many benefits, including improved customer experience, increased operational efficiency, bolstered security measures, and scaling and global expansion.

Whether you’re an early-stage startup or an established brand in ecommerce, you can benefit from payment gateways. Here’s what you should know.

What’s in this article?

• What is a payment gateway?
  
• How does a payment gateway work?
  
• Benefits of using a payment gateway
  
• How Stripe Payments can help
  

What is a payment gateway?

A payment gateway is an online tool that businesses use to securely process debit or credit card payments, digital wallets, and bank transfers from customers. It’s part of the network that processes payments for online transactions.

A payment gateway acts like a bridge, connecting a business’s website to its payment processing provider. When a customer buys a product, the payment gateway securely conveys the payment information from the customer to the payment processor, which completes the transaction authorization and settlement process. Payment gateways are where online transactions begin and where their conclusion is communicated to customers.

How does a payment gateway work?

A payment gateway acts as an intermediary between the business’s website and the bank that issued the customer’s credit card, also called the issuing bank or issuer. This is a complex, multistep process that ensures the transaction is secure, accurate, and efficient. Payment gateways play an important role in transferring funds and protecting sensitive customer information.

Here’s an overview of how that works:

1. The process begins with the encryption of data. When a customer places an order on a website, they enter their credit card information, which the web browser immediately encrypts. This encrypted data is then sent to the vendor’s web server. The use of SSL (Secure Socket Layer) encryption ensures the data remains secure during this step.

2. Once the data has been encrypted and sent, the secure order information is transmitted to the payment gateway. The payment gateway then sends this encrypted data via a secure SSL connection to the business’s processor.

3. Next is the transaction processing stage. The business’s payment processor forwards the transaction data to the appropriate credit card network. This network routes the data to the bank that issued the customer’s credit card.

4. In the fourth step, the payment processor initiates an authorization request. The issuing bank receives the authorization request and sends the processor with a response code. This code may indicate approval for the transaction or a decline, due to reasons such as insufficient funds or a lost or stolen card.

5. The final step in the process is order fulfillment. The payment gateway receives confirmation from the customer’s bank or credit card company that the payment has been approved. The payment gateway sends this response to the business’s interface, usually their ecommerce platform or website. This is the moment the payment is officially considered processed. After this, the business can proceed with fulfilling the order.

While there are multiple steps involved, the whole process occurs almost instantaneously. A payment gateway doesn’t just facilitate a transaction—it also maintains the integrity and security of sensitive financial information. On top of this basic functionality, modern payment gateway solutions often provide additional features, such as screening orders for potential fraud and calculating tax in real time.

Benefits of using a payment gateway

Payment gateways come with an array of benefits that can help businesses increase operational efficiency and improve customer experience. Here are the main advantages:

• Enhanced customer experience
  Payment gateways allow customers to make payments anytime, anywhere, and from any device. A positive payment experience can foster customer loyalty, leading to repeat purchases and long-term customer relationships.

• Improved security
  Payment gateways use high-level encryption technologies and secure protocols to safeguard data such as credit card numbers, ensuring they are safe from possible fraud and data breaches. Additionally, many payment gateways employ sophisticated fraud detection tools that screen transactions for suspicious activity.

• Quicker processing
  With payment gateways, automated processes handle transactions faster than manual processing. This speed provides a swift checkout experience for customers and accelerates the sales cycle for businesses, improving cash flow.

• Global expansion
  Many payment gateways support multiple currencies, enabling businesses to cater to customers in different countries. This can enhance the customer’s shopping experience and contribute significantly to a business’s global expansion efforts.

Payment gateways enable online transactions and improve overall business operations. By providing a more secure and efficient transaction process, enhancing customer experience, and facilitating international payments, payment gateways play an important role in digital commerce.

How Stripe Payments can help

Stripe Payments provides a unified, global payments solution that helps any business—from scaling startups to global enterprises—accept payments online, in person, and around the world.

Stripe Payments can help you:

• Optimize your checkout experience: Create a frictionless customer experience and save thousands of engineering hours with prebuilt payment UIs, access to 125+ payment methods, and Link, a wallet built by Stripe.
  
• Expand to new markets faster: Reach customers worldwide and reduce the complexity and cost of multicurrency management with cross-border payment options, available in 195 countries across 135+ currencies.
  
• Unify payments in person and online: Build a unified commerce experience across online and in-person channels to personalize interactions, reward loyalty, and grow revenue.
  
• Improve payments performance: Increase revenue with a range of customizable, easy-to-configure payment tools, including no-code fraud protection and advanced capabilities to improve authorization rates.
  
• Move faster with a flexible, reliable platform for growth: Build on a platform designed to scale with you, with 99.999% uptime and industry-leading reliability.
  

Learn more about how Stripe Payments can power your online and in-person payments, or get started today.