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Retail
9 minutes read

What Is a Payment Gateway: The Fundamentals

by Alvaro Insignares
Retail
9 minutes read

As online shopping and other internet-based tools like apps take over, many retail companies are just starting to ask a fundamental question: what is a payment gateway? For many businesses, this concept is something totally new. For others, those who have already implemented one, it remains a highly technical matter. This does not have to be this way.

Whether your retail company is just migrating to the online world or has some experience in the world of eCommerce, you probably need a payment gateway. Only by using one can you guarantee your customers a frictionless and reliable payment processing alternative online. Thus, as a retail company, understanding the fundamentals of a payment gateway as a means to process eCommerce transactions is necessary in order to stay relevant to your customers. Failing to do so poses the risk of leaving an important market share open to your competitors.

In this post we discuss what a payment gateway is, its fundamentals like why it matters, how you can implement one, and what you need to guarantee successful payment operations and ensure an outstanding User Experience (UX).

The Great Consumer Shift

Since 2020, mostly due to the pandemic, retailers have experienced an accelerated shift in consumer habits and behavior. This is what McKinsey consulting has referred to as ‘The Great Consumer Shift’. This, in a nutshell, refers to a considerable migration of customers from brick and mortar stores to online sales platforms. 

Although migration of sales from physical stores to online ones was already a reality, the pandemic accelerated the process. Some experts have referred to this shift as a phenomenon that condensed a transition that was expected to last years into just a couple of months. It’s no wonder that many retailers are having trouble adapting. For many, this has meant the urgent need to implement a digital transformation.

As this process unravels, retailers must face a number of challenges in order to stay relevant to their customers. Among these challenges, we find the implementation of an essential tool for any company wanting to offer a seamless online experience: a payment gateway. 

What Is a Payment Gateway

The term might sound like something complicated or new, but probably most retail companies already have one. If your company uses a payment processor that allows customers to pay with their credit cards, you are already using one.

A payment gateway is a technology used by companies to process payments from customers at the point of sale (POS). In other words, it is a tool that allows companies to access a bank account’s information to process financial transactions. By using one, companies are able to receive payments through customers’ credit cards as well as debit cards. More recently, other forms of payment are also being accepted, such as cryptocurrencies and digital wallets.

Different types of payment gateways exist. Brick and mortar stores, because they require the physical presence of customers, tend to use physical devices to process transactions. The most common of these alternatives requires customers to use their physical credit cards in order to perform a payment; other services like Apple Pay offer an alternative to this method and are gaining traction. Most recently, alternatives like Square have been revolutionizing how companies and customers perform these transactions. Now, customers can easily pay through their phones instead of using their credit cards through virtual terminals.

Other platforms, like Shopify, have been helping businesses set up online stores where they can easily configure their eCommerce transactions. Alternatives like this have helped retailers increase their online presence without having to have an entire IT department. In other words, eCommerce platforms have closed the gap between companies and their customers through the use of easy to implement online payment gateways.

Online Payment Platforms

Through the use of easy to set up online sales platforms, companies can offer customers frictionless online payment solutions. To pay online, customers only need to input their credit card information, that is, without the physical card. This has become a major success factor in terms of the increase of eCommerce. 

Throughout the years, companies have seen how customers are more willing to pay for their goods and services using online payment methods. However, it is worth highlighting that, in order to guarantee a successful online purchase experience, it is important to choose the right payment tool. 

Without a proper payment processor, companies would be unable to sell products online. Setting up a payment gateway properly requires companies to configure their businesses for the online world. It isn’t only about buying the service and waiting for customers to arrive. Although the task of transitioning to online sales entails a number of steps, it is becoming easier to do. 

Companies that offer payment processing solutions tend to compete based on elements like the fees they charge per transaction or the service in general but also based on their ease of use. That’s why implementing one shouldn’t be a burden. The real challenge is offering a frictionless experience that customers love.

In general, companies wishing to set up a proper payment gateway need to consider the following:

Setting Up a Merchant Account

In order for an online payment gateway to work, companies need to have a merchant account linked to their online sales platform. A merchant account is a type of bank account specially designed for businesses. Through it, a company can make or accept electronic payments. It can be used for both physical stores as well as online sales platforms. It is mandatory for eCommerce transactions but not for physical ones.

To find the best merchant account alternative for your business, it is recommended to talk to your bank. Different banks have different alternatives, and depending on your business and what your plans are, different alternatives might be more suitable than others. Stripe is a powerful payment gateway that comes with a merchant account; at Koombea we use this alternative for many of our projects.

Above all, make sure to have your company’s account with a bank that can guarantee secure payment processing. As more companies go online, so do burglars. 

PCI Compliance

Securing your bank account isn’t the only thing you need to do. Making sure your customers’ payment data is protected is also important. As a business, there is a great responsibility in making sure that information like credit card data, user names, and other sensitive information is unreachable to cybercriminals. 

To do so, the best you can do is to comply with PCI norms. This is a widely adopted payment data security standard used for the payment card industry. Most payment platforms offer basic levels of security. If you want to improve it, we recommend hiring a security specialist who can help you guarantee your customers a secure buying experience. DevOps services are ideal to set up a secure and PCI compliant online payment platform. 

Choosing the Right Payment Gateway Alternative for Your Business

Choosing the right payment gateway can be a hard task if you are not familiar with many of the industry’s standards. Different factors might make a specific alternative better suited to your needs. A solution that tends to work for many companies is Shopify Plus

Considering aspects like your target audience, your market, point of sale, the number of transactions per month, your sales volume, and your customers’ buying habits is key to determining the right alternative for your business. This case study portrays how Nauty 360 had to choose the right alternative for them based on their growth strategy.

Implementing a Payment Gateway

In the end, you don’t just want to acquire a payment tool. You want to make sure that you deliver your customers a unique retail User Experience. To do so, you need to consider aspects like payment security, a platform that’s both easy to use and maintain, and a robust customer support system. Most importantly, you want to integrate the alternative you choose into your business processes. 

Every company is unique, and although payment tools are becoming more powerful and easier to implement, you have to make sure that your processes and your tool are correctly aligned. Failing to take these matters into account might trigger your customers to look for other purchasing alternatives. 

Do You Need a Payment Gateway?

Most companies are always wary of additional costs. Any additional expense is usually seen as something to avoid rather than something to capitalize on. This tends to be the case with payment gateways. For many retail companies, a payment gateway is seen as just another expense, so they may try to minimize the cost by selecting a less expensive or more basic option than what they actually need. 

This kind of thinking might end up being very expensive for your company. As discussed, having the right payment tool correctly implemented into your business processes is key to your business if you want to deliver users a great User Experience.

Finding a Payment Gateway Provider

There are many different payment processors to choose from, and finding the right one for you can be a difficult task if you are new to the subject. Additionally, take into consideration that, besides choosing one, you also need to make sure that it is correctly implemented into your business processes. Above all, the implementation needs to guarantee that users’ payment data is secured.

At Koombea, thanks to our experience in the retail industry, we have been helping companies find the right payment gateway since 2007. Through our unique approach to building technology solutions, we are able to choose the right tools and merge them with your specific company needs. We can easily help you find the right payment gateway provider that best suits your company’s needs while focusing on PCI compliance. 

Contact us for a free consultation and start delivering your customers a unique User Experience. 

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