Published On: Tue, Mar 14th, 2017

Payment Gateways Explained: Indian E-commerce 101

E-commerce has been steadily spreading its wings across the globe over the past few years. And thus, online transactions and e-payment systems have also flourished alongside.

In India, the government has made a massive push towards digital payments. Recent government policies such as demonetization of bank notes has led to an increased adoption of online payments. This has led to a steady rise in the payment gateway options available to e-commerce businesses.

But few of us know how these work. Let’s take a deeper look at how online transactions are typically carried out in payment gateways.

Payment Gateway

A payment gateway is a merchant service that enables online transactions. All payments made through payment gateways are e-payments.

A payment gateway authorizes credit or debit card payments or even direct payments for online retailers. It processes transactions by transferring information between the payment portal and the corresponding bank.

This payment gateway may either be owned by your bank or by a financial service specializing in this field, such as a payment service provider.

Payment Gateways In India

Large scale adoption of mobile internet users in India has led to a rise in e-commerce users. This in turn has led to a direct rise in the number of payment gateway options available in the market. Here is a list of the top payment gateways in India:

  •      CCAvenue
  •      Instamojo
  •      Citrus Pay
  •      Direcpay
  •      Google Wallet
  •      PayPal
  •      PayU
  •      RazorPay

While studying payment gateways for your e-commerce store, analyze factors such as setup cost and transaction commissions. Different payment gateway providers also need different sets of documents to complete registration.

photo/ Public domain pictures via Pixabay

Transaction Processes In Payment Gateways

A variety of tasks are undertaken by the payment gateway right after a user performs an online transaction. These tasks typically follow the following sequence:

  •      After showing interest to buy an item online the user makes a purchase. The user is then asked to enter their card details through an automatic answering service.
  •      This information is then encrypted and sent to the merchant server.
  •      The merchant server then sends these details to the payment gateway.
  •      The payment gateway then converts this message and passes it on to the payment processor used by the merchant’s bank.
  •      The payment processor forwards the data to the card association, i.e Visa or MasterCard.
  •      The card association routes this to the card issuing bank.
  •      The issuing bank then receives the authorization request and verifies the card details sent to it.
  •      After verification, the bank returns the information to the processor as ‘approved’ or ‘denied’ in the same form as the authorization request. In case of authorization denial, the information is returned along with the reason for the failure of the transaction.
  •      The processor then forwards this information to the payment gateway.
  •      The fund transfer occurs once the payment gateway sends this to the merchant website.
  •      This whole process generally takes up to 2-3 seconds.
  •      What’s left now is for the merchant to fulfill the order. This leads to a final clearance of the authorization by the issuing bank.

These days many payment gateways also come with different tools. These tools let you filter orders for fraud and calculate tax before sending the ‘auth’ request.

Who ever knew that e-payments undergo these many processes? Isn’t it fascinating?

Online payments are fast, secure and efficient. What’s more, a payment gateway helps the e-commerce venture scale because of the level of automation involved in the process.

Compared to payment options like Cash on Delivery (COD),  e payments are far more cost effective, and cheaper too. With today’s advanced internet services, the entire process only takes up to 2-3 seconds. Mobile internet users are also open to using online transactions in a big way. This has further spurred the demand for payment gateway providers in the Indian e-commerce market.

Author: Rudra Singh

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