Payment Gateway process

Question

I have to integrate a payment gateway in my web app. I am negotiating with PGs to get most suitable offer. Most of them have:

1. Setup Fees
2. Annual/Monthly Fees.
3. Per Transaction Fees (1%-5%)
4. Rule of thumb is- Higher the setup fees, lower Transaction Fees.

My question here is "Are payment gateways compulsory?" I have used several sites like ebay, flipkart, amazon etc which take credit card info directly on their portal, authorizing it directly from bank, bypassing 3rd party payment gateways. (This is how it seems.)

• What happens behind the scenes here? What is the process to directly accept payments and authorize it from bank?
• What tentative transaction volume is needed to make the above scenario profitable?

Hachman

In generall there are some non public webservices which allows that companies to check if that data is vallid. – Fricke

@Fricke I think just validating credit card info is not sufficient. As they also need to authorize payment. – Hachman

Answer 1

I used to work for bluesnap (previously called Plimus) which is an on-line payment-processing company. A payment-processing company - is a company that authorizes and charges the credit-card against the processing gateways.

Many people confuse payment-processing companies with processing gateways. As a small business you can either use one of the payment-processing companies or use self-service such as Authorize.net, Paypal etc.

There are plenty of resources over the web that explain about payment-processing but I don't think that it will be very interesting to read, unless you decide to build your own gateway...

In order to work directly against one of the gateways you need to process millions of transactions per day - which I don't believe you have the capacity.

Burkett

+1 Thanks alfasin. Hypothetically speaking, If I process millions of transactions and I want to bypass payment gateway and associated commission, how will the picture paint up then? – Hachman

you always pay commission to someone: banks, credit-card companies, gateways etc. no way around it. A thumb rule: The bigger you are the less commission you pay. – Burkett

Just to clear up a few things- Paypal, authorize.net, google checkout, amazon checkout are Payment Processors, Not Payment Gateways. Is that? – Hachman

Yes and No. Paypal is a gateway as well as wallet service (and since eBay bought PP I believe that they, too, are a gateway). I'm not sure about Amazon and google. Example for other gateways: echo, cybersource, paymentech, Litle. – Burkett

Answer 2

The payment gateway process acts as a secure bridge between you (the customer) and the merchant:Click here

You enter your payment information on the merchant's website. The payment gateway securely transmits that information to the payment processor. The payment processor verifies the information with your bank. Your bank sends approval or denial back to the payment gateway. The payment gateway transmits the approval/denial to the merchant.

Hysteroid