Payment gateway worldwide
Tags: machinelearning, fraud
Published: 2023-02-20 07:01:13

Ever bought anything from a website? Wondered how the website actually accepts payment? All the payment related functionality in a website is thanks to the payment gateway. Payment gateway is a merchant service that authorizes credit card or other forms of payments on behalf of the merchant. This 3rd party service enables merchants to easily integrate e-commerce into their websites by accepting online payments in a secure fashion. According to [Grand View Research](https://www.grandviewresearch.com/industry-analysis/payment-gateway-market), the global payment gateway market size was valued at USD 22.09 billion in 2021.

## How does it works?
Let’s take a look at how websites process online payments using the payment platform. To start, the buyer needs to select their desired items and add them to a virtual shopping cart. Once they are done with their shopping, they can go into their cart and then perform a checkout.

Usually, at this point of the process, the buyer is prompted to key in their credit card details or select e-wallets for payment. For credit card payments, the buyer will have to key in their card number, card verification value (CVV) and expiry date.

Existing customers may be asked to select their payment methods like saved credit card. Upon submission, the payment info is sent to the payment processing gateway. In the case of credit card payments, the payment gateway will contact the card issuing bank to authenticate the card details. If the bank approves the transaction, then the payment merchant will indicate to the website that payment has been transferred to the merchant and completes the order. On the other hand, if the bank rejects the transaction, it will inform the website which will then prompt the buyer to try another credit card.

The above process is just a generalization of how the online payment is processed. However, payment merchants can be classified into 2 types; hosted and non-hosted payment gateway. Depending on the type, the payment processing flow may differ slightly.

## Hosted payment gateway
With a hosted payment gateway, the customer is redirected to the payment merchant’s website upon checkout. The customer will have to key in all their credit card info into the hosted payment gateway website.

If the payment transaction went through successfully, then the customer will be redirected back to the shopping website to complete their order. However, if the payment transaction was unsuccessful, the customer will see a payment declined message after being redirected back to the shopping website. In that case, the website may prompt the user to key in another credit card to reattempt payment.

Small e-commerce sites prefer this type of gateway as it is easier to setup and integrate into their website. In addition, all sensitive data is keyed in directly into the payment gateway website which means customers can rest assured the credit card info is being handled in a secure manner. For example, the PayPal is commonly used in this manner.

## Non-hosted payment gateway
E-commerce sites that prefer to customize their payment process will opt for a non-hosted payment gateway. Integrating with the payment gateway in this manner entails calling Application Programming Interfaces (APIs) provided by the gateway. The web developer for the e-commerce sites can programmatically call the gateway APIs inside their own website codes.

From the customer’s point of view, they are never redirected to a 3rd party website for payment. That means it is a more seamless checkout process for the buyer vs. the process for the hosted payment gateway. Customers feel more comfortable with this form of checkout and are less likely to abort their purchases.

Besides that, merchants can customize the payment page design as well as collect customer data for future marketing purposes. An example of a non-hosted payment gateway provider is Stripe.

## The relationship between payment gateway and chargebacks
A chargeback is a dispute between a customer and a merchant over a payment transaction. Chargebacks occur when a customer disputes a charge on their credit card statement and requests that the payment be reversed. Chargebacks can be initiated for a variety of reasons, such as fraud, unauthorized transactions, or a dispute over the quality or delivery of goods or services. The relationship between payment gateways and chargebacks is that payment gateways are often used to help merchants manage and [prevent chargebacks](https://www.fraudlabspro.com/resources/tutorials/useful-tips-for-merchants-to-handle-chargebacks/#devto).

In recent years, the advancement of artificial intelligence and machine learning has helped to enhance the payment processing system and add additional services including fraud screening, address verification and card verification. It definitely helps merchants to reduce the risks of credit card fraud and reduce the likelihood of fraudulent transactions that might result in chargebacks. Additionally, payment gateways may offer chargeback management tools to help merchants respond to chargebacks and provide evidence to support their case.

## Conclusion
In summary, payment gateways are a critical component in eCommerce and online payment industries for managing payment transactions. It doesn’t matter which type of payment processing gateway is employed by the e-commerce website as long as it provides a scalable system with basic security measures to authenticate any customer’s card details. Ultimately, it’s up to the website developers to make that happen.