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Payment gateways – a mere fraction of the financial services relevant to online business

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As you no doubt already know, today’s world is moving ever closer to a cashless state, where money flows digitally or via credit cards. For instance, the European Central Bank has found that cash was used for only 59% of POS transactions in 2022, down from 72% in 2019. In the US, the situation is similar, with Pew Research finding that 41% of Americans use no cash for purchases in a typical week, up from 29% in 2018 and 24% in 2015.

To stay competitive, businesses are increasingly using payment gateways to make the checkout process as simple and convenient as possible for their customers. That being said, payment gateways represent only a fraction of the financial services that online companies require to succeed.

This fact, while true, is unfortunately not readily apparent to everyone. In this article we’ll try to clarify the issue by first briefly discussing how payment gateways operate, and then give you an idea of the range of financial services relevant to online business.

What are payment gateways?

In simple terms, a payment gateway is a network that enables customers to transfer funds to your business via a secure channel. This comprises a multi-step process whereby the payer’s data is checked against fraud, encrypted using a built-in protocol, and passed along to the relevant parties within the transaction flow.

The steps themselves can be grouped under the following headings: collect, verify, transfer, authorise, and complete. Each of the overlapping steps involves the merchant, the customer, the payer’s bank, and payment schemes.

A payment gateway – whether of the redirect, checkout, or on-site variety – is ultimately a front-end solution that replaces the magnetic stripes used by earlier POS terminals.

Examples of payment gateways that you’re probably already familiar with include PayPal, Square, Apple Pay, and Stripe.

Beyond payment gateways

As we’ve mentioned at the very beginning, the finance sector encompasses a much wider range of services that go well beyond payment gateways. 

Digital banking operations

Quite apart from offering a range of business accounts, many banks and digital financial institutions (FIs) are open to building robust, long-term relationships with their clients. Aiming to become a one-stop-shop for your business, a digital FI may endeavour to learn about your particular needs and provide a range of tailored products, services, and favourable terms of credit. 

To succeed, most companies also require a sophisticated way to manage their cash flow – the lifeblood of any business. Digital tools can make this process much easier and less expensive by automating your accounts payable/receivable, speeding up invoice processing, reducing human error, preventing fraud, and more.

Finally, merchant services can help you boost customer satisfaction and revenue. In addition to payment gateways discussed above, merchant service providers offer a variety of POS, online transaction handling, e-commerce support, and other services designed to streamline the processing of payments.

Compliance assurance

Online businesses are subject to a number of continuously evolving regulations. These include Know Your Customer (KYC), Anti-Money Laundering (AML), data protection, and privacy requirements, as well as a trustworthy and licensed processing partner.

Ensuring compliance around each of these axes requires significant time, resource, and human-power investment – something that few SMEs and startups can spare without compromising profitability. In many cases, proper handling of all the above legalities necessitates a separate compliance department, which burns through operating capital without ever generating any revenue.

Luckily, some FIs now offer Compliance as a Service (CaaS), enabling companies to displace the lion’s share of compliance-related burden onto a team of professionals. For this purpose, they provide financial products with built-in compliance checks and white label financial services that remove the need for clients to become licensed FIs themselves. In addition, FIs can take over procedures like KYC for onboarding and on-going due diligence, customer risk assessments, and more.

Global payments

For optimal performance and market competitiveness, putting a fast and secure payment gateway in place is not enough. Businesses must also have extensive knowledge of their audience, target market, and customer expectations to provide their customers with payment methods they find most convenient.

A seamless checkout process requires, among other things, currency support that matches the geographical scope of your business, and most likely – at least a few international payment methods preferred by your customers.

Risk management for cross-border transactions is another key consideration. Such transactions are strongly impacted by exchange rate fluctuations, and pose risks, such as fraud, data loss, high cost, low transparency, slow transfer speed, and regulatory overcomplexity. These are especially relevant to SMEs that are still hampered by slow procedures and high fees.

Summing up

As we’ve elaborated throughout this article, payment gateways are central to the proper functioning of online payments and, therefore, of online business as such. It should not, however, be assumed that payment gateways exhaust all that modern, digital financial services have to offer – far from it. 

To ensure a seamless checkout experience, online companies usually choose to pair their chosen payment gateways with digital banking, compliance, and global payment services. No wonder – today’s customers expect maximum convenience when it comes to shopping, preferring businesses that offer the financial services they need, when they need it.

Many FIs now offer extensive service catalogues that cover everything from streamlined checkout processes and automation of routine financial operations to Compliance-as-a-Service and global payment methods. Used together with a robust and secure payment gateway, they can ensure a higher level of customer satisfaction and loyalty, lower costs, and sustained competitiveness of your business.

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