When you start an ecommerce business, you should think carefully about how to accept payments online to meet user needs and manage the cash flow of your business viably. The payment methods will also determine the facilities your business will need.
Typical payment methods utilized in a modern business include cash, credit or debit cards, money orders, checks, online payment gateways such as PayPal and bank transfers.
Unless you’re running a shady side business that only accepts suitcases full of cash, you’ll need a reliable method of accepting online payments on your website. It means you should choose a payment processor and payment gateway.
How Online Payment Systems Work
It is often hard to understand how the payment process works and what the difference is between a payment processor and a payment gateway. Let’s find out.
Following four parties are involved with every credit card transaction:
- The customer
- The merchant
- The acquiring bank
- The issuing bank
Every transaction aims to transmit money from the issuing bank to the acquiring bank according to the agreement between the customer and the merchant. The payment processor and payment gateway connect all four parts of the payment chain.
The payment processor executes the transaction by transmitting data between you, the issuing bank, the merchant, and the acquiring bank. It also typically furnishes you with the credit card machines and other equipment you use to accept credit card payments.
A payment gateway securely authorizes payments for online stores. This is important because it is restricted, because of security reasons, to transmit transaction data directly from your site to a payment processor.
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