Payment Gateways
A payment gateway is a merchant service provided by an e-commerce application service provider that authorizes credit card or direct payment processing for e-businesses, online retailers, or traditional brick and mortar businesses. It acts as a mediator between the merchant, the consumer, and the bank, ensuring secure transmission of transaction data.
History
The concept of payment gateways emerged with the growth of the Internet and e-commerce in the mid-1990s. Here's a brief timeline:
- 1994: The first secure online transaction was completed using NetMarket, which utilized early forms of payment gateways[1].
- 1995-1996: Companies like CyberCash and First Virtual Holdings began offering services that could be considered predecessors to modern payment gateways[2].
- Late 1990s: The launch of services like PayPal and the integration of payment gateways into e-commerce platforms like eBay marked significant advancements in the field[3].
- 2000s: With the growth of online shopping, payment gateways became more sophisticated, offering seamless integration, better security protocols, and support for multiple currencies and payment methods[4].
Functionality
Payment gateways perform several key functions:
- Authorization: Verifies the card's validity and the availability of funds.
- Encryption: Secures sensitive data during the transaction process using SSL/TLS or other encryption methods.
- Payment Routing: Routes the transaction to the appropriate payment processor or bank.
- Transaction Management: Manages transaction details, including refunds, chargebacks, and disputes.
- Settlement: Transfers funds from the customer's issuing bank to the merchant's account.
Security
Security is paramount in payment gateways due to the sensitive nature of the data involved:
- PCI DSS Compliance: Payment gateways must adhere to the Payment Card Industry Data Security Standard (PCI DSS) to ensure secure handling of card data.
- Two-Factor Authentication (2FA): Many gateways now support or require 2FA to enhance security.
- Tokenization: Converts sensitive card data into non-sensitive equivalents, reducing the risk of data breaches.
- Fraud Detection: Advanced algorithms and machine learning are used to detect and prevent fraudulent transactions.
Notable Payment Gateways
- PayPal: One of the most recognized payment gateways, offering both payment processing and money transfer services.
- Stripe: Known for its developer-friendly APIs and support for a wide range of payment methods.
- Authorize.Net: A veteran in the payment gateway industry, offering robust transaction processing services.
- Square: Initially focused on point-of-sale systems, Square has expanded into online payment processing.
Sources
See Also