A Payment Gateway is the software technology that enables the online merchant to collect payments from customers using credit card transactions, UPI transactions, net banking, wallets and other forms of electronic payment. For the online merchant, the Payment Gateway links the customer’s payment system with the merchant’s bank account.
For the online merchants servicing international customers, the requirements are much more. International transactions, foreign currency transactions, foreign currency conversions, international transactions and foreign currency regulations might all impact the collection and settling of the payments.
What Is a Payment Gateway?
A Payment Gateway is a technological platform which provides secure transfer of payment details of the customer to the merchant, payment processor, and banking system.
During an online shopping transaction, when a customer makes a purchase from the online store, the gateway helps in transmitting the payment data to the appropriate payment network or banking system. When the transaction is either authorized or rejected, it gets communicated back to the merchant.
The transaction flow can be described as follows:
Customer → Online Business → Payment Gateway → Payment Network/Banking System → Payment Gateway → Business
The gateway supports various payment options, enabling the customer to choose the most convenient payment method for him.
From the perspective of an online business, it means that the merchant does not have to create payment processing infrastructure from scratch.
How Does a Payment Gateway Work?
Payment Gateway consists of several stages.
1. Order from the Customer
The customer orders the required goods/services from the online business.
2. Choosing the Payment Option
Depending on the gateway and merchant account, the customer may choose the following payment methods:
- Credit card
- Debit card
- UPI
- Net banking
- Digital wallets
- International cards
- Other payment methods
3. Payment Details Are Secured for Transmission
The gateway sends the necessary transaction details to the payment processor or the related financial network.
4. Authorization of the Transaction
The transaction capability is verified by the customer’s bank or the payment service provider.
5. Feedback on the Outcome of the Payment Is Provided
The gateway communicates the outcome of the payment to the website or application of the merchant.
6. Payment Settlement
The funds are then settled to the merchant’s designated bank account once the transaction has been successfully processed after applicable deduction, following the settlement cycle of the service provider.
Why Does an Online Business Require a Payment Gateway?
An online business requires an efficient payment infrastructure to facilitate customer transactions.
Without an easy way to make payments online, customers will fail to complete their purchases since they cannot pay using their preferred means.
- Payment Gateway Can Help Businesses:
- Process online payments.
- Carry out transactions using several payment methods.
- Serve customers from diverse regions.
- Automatically process payment confirmations.
- Conduct refund transactions.
- Record transactions.
- Conduct recurring payments where available.
- Conduct transactions using international currencies where available.
- Process payments through websites and applications.
For e-commerce transactions, the convenience of payments can affect the process of purchasing and conversion rates.
Payment Gateway for Cross-Border Transactions
When a company operates transactions in another country, apart from payments that involve domestic payment systems, the company will need a solution to handle cross-border transactions.
In the case of India, for instance, a company in the country can be selling a certain service to clients in USA and receiving payments in USD currency. The company can also be selling services to clients in Europe and receiving payments in EUR, or the company can be in the UK receiving GBP payment.
The payment gateway and the banking system of the merchant must allow the type of transaction and currency involved.
Ability to do cross-border payment depends on:
- Business sector
- The profile of the merchant
- The country where customers are located
- Acceptable currencies
- Type of payment
- The banking relationship
- Legal obligations
- Payment provider’s policies
Before selecting the provider for international payment service, the business needs to check whether the provider will allow cross-border transactions.
How Do Cross-Border Payments Work?
A cross-border payment involves the sender and receiver of money operating from different jurisdictions or countries.
For the Indian business, the process of making a typical cross-border payment will be:
The transaction path might differ based on the chosen payment mode and the payment facilitator.
Cross border transactions could involve issues such as:
- Foreign exchange
- Currency conversion
- International processing fees
- Timelines of settlement
- Refunds
- Charges
- Regulations
- Export documents when applicable
Thus, firms need to separately consider the capabilities of making international transactions as opposed to domestic payments.
Foreign Currency Transactions and Currency Conversion
Even if the firm uses Indian rupees as a currency in its accounting books, the client could prefer to make the payments in their own currency.
Examples of currencies which a firm accepting foreign currency transactions might deal with include:
In cases where there is a difference between the transaction currency and the settlement currency, currency conversion will take place.
Depending on factors such as exchange rates and conversion fees among others, the actual amount received by the merchant will be affected.
It is important for merchants to consider the exchange rates offered by the provider and not just the payment processing fee charged.
What are Payment Gateway Fees?
The Payment Gateway fee depends on several factors including:
Not all businesses are charged the same for their use of Payment Gateway services. Some providers charge varying prices depending on the volume of transactions, type of business, and payment method used.
Documents Needed for Setting up a Payment Gateway
Payment Gateway providers usually undertake business verification and KYC verification prior to providing merchants payment services.
Requirements may vary based on business structure as well as service provider.
Some of the documents needed are:
Proprietorship
- PAN
- Aadhaar or any identity proof
- Business proof
- Address proof
- Bank details
- Business/website proof
Partnership Firm or LLP
- PAN of business
- Partnership deed/LLP incorporation papers
- PAN & KYC of partners/designated partners where necessary
- Address proof
- Bank details
Private Limited Company
- Certificates of Incorporation
- PAN of Company
- Memorandum and Articles (if any)
- Director/KYC details
- Details of registered office
- Current bank account details
- Business/website proof
Other Information
Provider may also ask for:
- Product/services information
- Fee structure
- Refund Policy
- Cancellation Policy
- Terms & Conditions
- Privacy Policy
- Business Model
- Business website/app details
- Volume of Transactions
Service provider may ask for additional documents based on the industry as well as risk category.
Why is a Current Bank Account Necessary?
Businesses must have the right type of Current bank account or business bank account that suits their merchant settlement needs, as per the specific requirement of the provider.
The current bank account should usually be the same one that belongs to the entity that is applying for the payment service.
For instance, the payment settlements received by a private limited company must be through an appropriate company bank account and not through any random individual bank account.
How to set up Payment Gateway for your business?
Setup of a Payment Gateway generally entails the following steps.
Step 1: Business Registration
Be prepared with the correct business structure and documents.
Step 2: Maintain a Business Bank Account
Maintain an eligible business bank account to receive your payment settlements.
Step 3: Choose a Payment Provider
- Compare payment providers on the basis of:
- Domestic payment services
- International payment services
- Currencies offered
- Transaction fees
- Transaction time
- Refund process
- Integration process
- Customer support
- Security
- Reporting
Step 4: Submission of KYC Documents
Submit the documents asked for by the payment provider for both business and the promoter.
Step 5: Business Verification
The payment provider verifies the business model, its website, products or services, and submitted documents.
Some industries might be subjected to enhanced verification.
Step 6: Integration of the Gateway
Developers can use the available APIs, plugins, or SDKs of the provider to integrate the payment gateway into the website, application, or e-commerce platform.
Step 7: Transaction Testing
It is necessary to perform transaction testing prior to launching. Successful transactions, transaction failure, refund, and other checkout scenarios should be tested.
Step 8: Start Accepting Payments
After approval and activation, customers can start making payments via the payment gateway supported payment methods.
Payment Gateway Selection Checklist
Selecting a payment gateway just because of transaction fees can be wrong. Consider the following:
For an international company, the possibility to make transactions in USD, EUR and GBP may become more attractive compared to a lower transaction fee for domestic transactions.
Payment Settlement and Business Cash Flow
Payment settlement stands for the procedure of transferring of the processed transaction money to the merchant’s bank account.
The speed of the process may vary, depending on the payment service provider, the type of payments, the transaction type, risk assessment and merchant agreement.
The businesses should know about the following:
- Speed of the settlements;
- Currency of the settlements;
- The minimum amount of the settlements, if it exists;
- Adjustments to the refunds;
- Deductions in case of chargebacks;
- Procedure of international settlements;
- Time of the bank-related processing.
The planning of cash flow becomes important for businesses that receive considerable amounts of foreign income.
Security of the Payment Gateway and Business Reputation
The payment security is important, as clients share their payment information while making transactions.
The good payment service provider must provide proper security and comply with payment industry and regulation requirements.
Companies should also make sure that their websites use HTTPS and payment information is processed via integration approved by the provider.
The merchant should not store sensitive card information unless it has the necessary technology and permissions for doing so.
Payment Gateway for International Clients
In case you plan to target international clients, find out whether your provider supports countries and payment methods of your clients.
For instance, if your business targets the USA customers, USD payment and international cards may be prioritized. For European clients, EUR payment support will be needed. For British clients – GBP payments.
Your international clients may also have some different preferences regarding payment methods.
Good international checkout should clarify prices, currencies, payment confirmation, and refund policy for your clients.
Frequently Asked Questions
Payment Gateway is a technology solution that helps in performing the online payment transactions between customers, merchants and the payment-processing infrastructure. It enables the business to accept payment options via the website or application.
Yes, some Payment Gateway services support international payments, which include international cards and foreign currency transactions. This will depend on the Payment Gateway service provider, the business type, location, currency and other factors.
The Indian business may accept USD, EUR and GBP payments if the provider supports international payments and the appropriate currency types.
There are many cost elements involved such as transaction fee, international processing fee, currency conversion fees, foreign exchange spread, etc. Check out the cost structure of the respective provider.
Conclusion
A Payment Gateway is an inevitable element of e-commerce as it enables businesses to receive electronic payments. In addition to local transactions, if you have international clients, then you need to analyze how the payment gateway handles international payments, cross-border payment, and foreign currency payments and settlements.
When choosing the right Payment Gateway for your business, in addition to the transaction fee, also consider various other aspects like payment instruments accepted, USD/EUR/GBP availability, currency conversion, foreign exchange spread, settlement, KYC, refund, chargeback, integration, and customer support.
