How payment gateways, credit cards, banks and external payment providers fit into the online payment landscape

Payment landscape and environment

Please wear your seat belts. Do not fasten your seat belts too tightly, as the ride will be more of a walk. You will be driven in a carriage, sitting in the back seat and looking out of the window. Outside, you can see the Payment Landscape. Your driver knows the Payment Landscape inside out and shares his knowledge.

1) Payment Gateways

You operate a E-commerce website? You run a retail business? Are you on your lunch break and want to order some food online? Yes, you can pay bills or debts in such scenarios without payment gateways - but that's not really up to date.

A payment gateway is an electronic connection between a seller and a buyer. It allows the buyer to send money to the seller to pay for purchased

goods or services in return. Payment gateways exist both offline and online: Offline transactions usually take place via payment terminals, known as point of sale (PoS) terminals. Online payments are usually made via a checkout process, at the end of which the purchase is completed. Most payments, whether on the World Wide Web or in the supermarket around the corner, are made by credit card.

An overview of the payment methods used by online customers for purchases can be found at statista.com.

2) Credit cards

If you are wondering why credit card payments - we see them as a

of course - are so popular in e-commerce? Here are three reasons:

Credit card payments allow for immediate confirmation of payment. Wire transfers are especially difficult when it comes to international payments. They're also outdated. Or how does it feel to wire someone money for an item you just ordered online, only to wait anxiously for the reported receipt of payment and shipping. This can take days, if not weeks.
As a customer you can buy now but settle your purchase later. Payments are due on a set payday (e.g., the end of the month). So make sure you have sufficient reserves so you don't default on repayments.
High security standards are maintained. For example, at the end of an order process there is a 3D Secure procedure for concluding payment.

The use of credit cards is steadily increasing, and their popularity is growing. This is reflected in decreasing amounts on average, which are paid by credit card. So credit cards are now increasingly used for everyday payments of small amounts.

Due to the growing importance of credit cards, I would like to briefly highlight how credit cards work and which players benefit from them. I'm sure you also want to know where exactly your money goes? Let's put that to the test with an example:

Here is a short example

Fred buys a bike for €500 on your e-commerce website using his VISA card. Who are the stakeholders involved in payment processing?

Trader: You
Buyer: Fred
Credit Card Network (/association): VISA
Issuing Bank: Freds Bank
Acquiring Bank: Your Bank

What does a typical payment processing look like?

Fred completes the checkout process on your e-commerce website using his VISA card;
The authorization is done: Is Fred's credit card valid?
After successful authorization, the buyer pays 500 €; this happens as follows (realistic but invented numbers): The Issuing Bank sends 500 € and may keep 8.50 €. 491.50 € is sent to VISA, of which VISA keeps 0.50 € and the acquiring bank 1 € each. The merchant receives 490 €.

When a buyer purchases a good (e.g., a bicycle) with a credit card (e.g., VISA), both the Issuing and Acquiring Banks and the Credit Card Network receive processing fees.

Every player benefits within the framework of payment processing:

The merchant gains access to the VISA network and can receive payments for products or services from all VISA Card users;
The acquiring bank receives a processing fee;
VISA receives a processing fee;
The issuing bank receives a processing fee and, if applicable, interest if, for example, the customer repays the loan taken out with default.

3) Receive payments from customers with your e-business.

Let's imagine you want to run an e-business (maybe that even applies already). Of course, you want your customers to be able to pay by credit card or other immediate means of payment. You as a seller simply want to receive the money from your buyers. According to what we know from above, in order to receive payment "one way or the other" you have to rely on Payment Gateways leave How do you establish a working connection with payment gateways? There are two possibilities here:

1. your bank offers you a payment gateway: If your bank hasn't approached you yet, ask them about equipping your business with a service and online terminal that will allow you to receive online or credit card payments. Your bank may be interested in connecting you in to their credit card networks, such as VISA, MasterCard or AMEX. (Both your bank and the Credit Card Networks collect processing fees on each transaction, as shown in the example above). If your bank determines that your e-commerce is profitable, it will be more than open to working with you and granting you, the lucrative seller, a merchant account. However, a bank will not offer you a payment gateway solution unless the revenue expected from the processing fees outweighs the cost of installing and maintaining it - cost-benefit trade-off at its best. In this negative case, your bank simply assesses the risk of them losing money on you as too high... Pain let up... Good news! You can still receive credit card and other immediate payments. External payment service providers (PSP), i.e. payment service providers, are ready for you!

2. payment service providers are payment aggregators (payment aggregators). They represent a network of merchants. You can think of a payment service provider as a mega merchant account. This mega merchant account is, of course, hosted and serviced directly by a bank. Where before you alone might have been rejected by a bank as an individual merchant, now you are part of a network that is accepted by banks. Banks especially prefer networks to individual merchant accounts, after all, risks are averaged out. A payment service provider acts on your behalf as a middleman between you (and a bunch of other merchant accounts) and the bank. They can process and accept online and mobile payments just like banks. You can think of payment service providers as payment service agencies that charge a commission for their services, which is a processing fee.

For small, medium-sized enterprises (SMEs)The use of payment service providers is an ideal solution for companies that have to deal with online, offline or credit card payments. If you want to learn more about payment service providers, stay tuned to our blog or contact us.

I hope you enjoyed the short ride. appleute accompanies e-commerce companies on their way to entrepreneurial success. Here you can learn more about the Four leading payment service providers: PayPal, Stripe, Mollie, Square.