Online financial transactions have skyrocketed over the past decade, both in the US and globally. Calculating an exact number is something that nobody has ventured to do in recent years, but those who dare make an estimate speak in terms of hundreds of billions of dollars. Not a cent of that would be possible without payment gateways.
These are the mysterious yet powerful pieces of software that sit behind the checkout in every ecommerce store, video streaming app or online casino and take your payment details to complete the transaction. There’s really no great mystery involved so let’s lift the lid.
Early days – taking a chance in the 1990s
Back in the 1990s, the internet was a very different place. The focus was on openness and sharing, which was fine if you were reviewing a science fiction movie, but less so if you were sending someone your bank details. People have compared the early days of the internet with the Wild West and cyberspace has never been without its scammers.
It was 1998 before PayPal came along and introduced a way of transferring funds digitally without having your details stolen and your account emptied. What they did laid the way for the payment gateways to come.
A step-by-step approach
A payment gateway can be described as exactly that – a secure and ringfenced area between buyers and sellers. When you buy something online, you go to the checkout and enter, let’s say, your bank debit card details for the sum of $50.
The website hands that information across to the gateway, which verifies the customer’s information – do the account details check out? Is there $50 available on the account? If it is all good, the payment gateway then coordinates between the issuing bank and the acquiring bank for the transaction to be made.
Once payment is authorized by the issuing bank, it sends confirmation to the payment gateway. The transfer itself usually happens instantly, but not always. That is why you sometimes see a “transaction is authorized” message but the money is still in your account for a few minutes.
Online casinos and financial institutions are special cases
The online gambling market is huge, and it is growing. Market experts predict it will be turning over more than $110 billion itself by 2025. Online casinos and sports books throw up extra challenges for payment gateways for several reasons. First, the industry is classified as inherently risky due to its nature and the sums involved.
Second, transactions can go both ways. Players deposit money when they start playing, but money goes the other way too if they are claiming bonuses from the online casino and maybe withdraw some winnings if they have a good night at the slots and card tables.
Third, the best online casinos tend to accept a wide variety of payment types, such as bank cards, cryptocurrency, digital wallets like PayPal or Skrill and even prepaid cash cards, which are coming back into fashion for exactly this sort of situation.
Online casinos need to cope with all these factors and ensure customers are paid with minimal waiting. They need an omnichannel gateway that processes payments just as robustly for incoming payments as it does for outgoing ones.
This is similar to the sort of gateway that financial institutions such as banks themselves need for two-way transactions to and from accounts. Putting this sort of gateway in place will cost the vendor more, but it is likely to pay for itself in terms of customers’ satisfaction.
Major players in payment gateways
Payments used to involve buyers, sellers and banks. Today, there are other significant players involved. These include the following:
- Payment processors, who provide the technological infrastructure for digital payments and facilitate the transactions themselves.
- Digital wallet providers like PayPal and Apple Pay who provide virtual accounts for digital payments without the need for a physical card.
- Cryptocurrencies like Bitcoin are currently on the periphery but are likely to have an ever-larger role to play in the future, as they provide a decentralized means of payment that is fast and secure.