As the business world starts recovery following the covid-19 pandemic many businesses are tapping into the online market to stabilize and grow their business. Whether you are selling products or services online, operating part or all or your business online or just launching your business, you may have considered deploying an ecommerce solution. In our 4-part E-commerce 101 series we will be breaking down all you need to know about e-commerce and help you determine how you can best use it to grow your business. 

 In part one, we discussed what e-commerce entails and how it works. Catch up on part one, here. In part two we explored why every business needs and should invest in an e-commerce strategy. You can read that section here. In part three, we are going to look at one of the most critical components of any e-commerce solution, gateways to facilitate payment. 

What is a payment gateway?

Before we go into the details, let’s look at a quick definition of a payment gateway. A payment gateway refers to the technology that captures and transfers payment data from the customer to the acquirer’s merchant bank.  A merchant bank is the bank that manages your money and that of your customers for online transactions. 

How payment gateways work

A payment gateway typically follows the following process:

  1. The customer selects the product or service they want to purchase and proceeds to the payment page. 
  2. The customer then enters their card details whether it is a debit or credit on the payment page. 
  3. The payment gateway encrypts the card details (converts it into a code) and performs fraud checks before transferring the card info to the  acquiring bank.
  4. The acquiring bank sends securely the information to the card schemes (Visa, Mastercard) to perform further fraud checks and then sends the payment data to the issuing bank, the customer’s bank.
  1. The issuing bank, after performing fraud screening, authorises the transaction. 
  2. The acquiring bank sends the appropriate message of approval or rejection to the payment gateway who then sends the message to the merchant. If the payment is approved, the acquirer collects the payment amount from the issuing bank and holds the fund into your merchant account.
  1. The funds are then deposited into the merchant’s account
  2. Based on the message, the merchant may either display a payment confirmation page and or send an email. If the transaction isn’t approved the customer is then asked to provide another payment method. 

Payment gateways are critical, yet high-risk part of an online transactions/e-commerce infrastructure. As such, the rigorous fraud checks that happen behind the scenes help to protect both customer and merchant users.As an entrepreneur operating online, it is important to have a working understanding of how this process works so that you can support these processes with the necessary documentation, policies and authorizations to support this process. 

Payment gateway options

While all payment gateways will allow you to process a customer transaction, there are different gateways and pros and cons to each of these. When considering the best payment gateway for your business, here are the four main types you may want to consider:

  1. Hosted payment gateways

This payment gateway redirects your customer from your website to your payment service provider (PSP) to complete the purchase and then returns your customer to your website after the purchase is made. It is one of the simplest and most secure payment gateways. One example of a hosted payment gateway is PayPal.

  1. Self-hosted payment gateways

This payment gateway collects your customer’s information on your website and securely transmits your customer’s payment information in a payment data format or via a hash or secret key. This method gives you the e-commerce store holder complete control over your client experience as the entire purchasing experience happens in one place. An example of this is Shopify Payments that are powered by Stripe.

  1. API hosted payment gateways

An API hosted payment gateway allows your customers to enter their payment information on your e-commerce website and the payment is processed using an API (Application Programming Interface) or HTTPS queries. This allows you a wide range of options for integration and customer experience including on mobile devices. 

  1. Local bank integration

As the name suggests, your customers are redirected to their local bank’s website and are required to enter payment and contact information after which they are redirected to your e-commerce website. The main advantage of this is that it is typically easy to set up and offers a simple payment structure. 

There are several payment gateways to empower you to deploy the right e-commerce solution for your business. If you have questions about how you can deploy e-commerce solutions for your business, get in touch at