The Past, Present, and Future of Commerce

American consumers are constantly earning, saving, and spending money. It’s been this way for a while, but the nature of how we exchange money has changed greatly from the 20th to 21st Century. Cold hard cash and checks used to be the primary way people made purchases. Then credit and debit cards became more and more prominent for reasons of convenience, especially in the U.S. In 2013, $4.6 trillion out of $8.6 trillion of total U.S. consumer payments were spent via credit and debit cards.

A large contributing factor to the ever-increasing use of credit and debit cards is electronic commerce (ecommerce). As online purchases become as common as (or more common than) purchases made at traditional brick and mortar stores, debit and credit cards become more necessary, as these are the fastest and least expensive means for transferring funds from one entity to another, be it between people, businesses or banks. However, with Internet hackers growing in number and expertise, are electronic funds transfers the most secure option? And how can this security be ensured and improved?

In order for businesses to ensure secure transactions between themselves and their customers, they utilize what are called payment gateway services. Gateway services, simply put, authorizes any payment made via credit or debit cards through a secure electronic system.

How do Payment Gateways Services Operate?

While several things must occur during the process of transferring money through a payment gateway, the way these systems operate can be broken down into three main parts:

1) Order Submitted

When shopping online, a customer must input his/her payment information into the system being used to make the purchase, then complete the request by hitting a button that says “Complete Order” or “Finalize Transaction,” etc. Or, if a customer is using a credit or debit card at a traditional store, he/she must swipe the card or hand it to the cashier in order to confirm payment. Debit cards require a Personal Identification Number (PIN) to be inputted before the payment can be confirmed.

2) Information Sent and Processed

The next thing payment gateway services do is send the transaction information through a secure server to a payment processor that connects to the retailer’s bank. The bank of the card user awaits confirmation or denial from the payment processor.

3) Payment Authorized

If all the information checks out and there has been no security breach or suspicious activity, and if the account of the card user has sufficient funds for the transaction, the payment is authorized and the funds are securely transferred within a few days, depending.

Amazingly, the processing of all of this happens within seconds. In the not-so-distant past, it could take weeks for a merchant to receive a check in the mail or a money order, and that’s if nothing happened to the money during transportation! And with the increased proliferation and use of smartphones there’s little doubt that payment gateways and online transactions are the way of the future.