With the skyrocketing alternative lending industry, here’s how lending gateway can revolutionise the game…
The lending processes in India are now de-mystified, digitised, and more available for businesses of every type and size than ever. However, payments are one of the most daunting tasks on lending platforms, especially when it comes to cash-flows and fee charges.
Thus, a lending gateway would be a one-stop solution that forges payment gateway, credit offerings, fraud screening facilities, card networks, customer details and more, all in one.
This article will show what a payment gateway is, how the whole process works, and how a lending gateway interaction can become the all-encompassing solution. But before you know the benefits of the lending gateway, here’s what payment gateway stands for:
What is a Payment Gateway and How Does it Work?
A payment gateway is an online payments service—acting as a channel—integrated with a platform (say, eCommerce, online marketplace) to make and receive payments. It acts as a mediator between a user and the bank, where all the required information, like debit or credit card data, is present for secure transactions.
The payments ecosystem consists of key players in the payment process like credit card payments, merchants (the online business in any vertical), payment facilitators, the issuing bank, and the acquiring bank, which passes the merchant’s transactions to the issuing bank for payments, customers, and more.
In addition, a payment gateway simplifies how merchants integrate necessary software to manage sensitive customer data throughout their payment journey.
Payment processing in the gateway has the following steps:
- Upon making a transaction on the merchant’s portal, the customer enters his bank information that either goes straight to the payment gateway or goes via the merchant system to the gateway. This is based on the integration: client-side integration, server-to-server integration, hosted payment page.
- The payment data is encrypted and sent to the acquiring bank for processing.
- Now, the bank sends the data to card schemes such as MasterCard, Visa, etc.
- The card schemes check the available funds and state of the card to determine the transaction’s validity. The payment is then sent to the issuing bank.
- If everything turns out to be okay, the issuing bank authorises the transaction or rejects stating the reason.
- The decision reaches the gateway, and the customer gets to go ahead with his transaction if it’s valid. Finally, the money gets deposited into the merchant’s account, a process called settlement.
Benefits of cashless payments
Payment gateways make secure cashless payments possible and offer the following benefits:
- Efficiency: Reduction in cash management costs for businesses as money movements are managed electronically. Agents can be redeployed to improve more essential services.
- Customer outreach: More customers are going digital. According to Statista, over 2.14 billion people globally are expected to buy products and services online compared to 1.66 billion in 2016.
- Contactless: In the times of the coronavirus pandemic, there is an increased need for contactless payments.
- Security: With the involvement of less cash, the risk of human error, robbery, and fraud decreases. Many of the eCommerce solutions incorporate enhanced security solutions to counter fraud and data breaches.
The Future of Payments
The reduced use of cash and the need for physical cards are now aiding the proliferation of merchant-issued and niche cards soon into the future, supported by a strong customer rationale and emerging payment innovations. In addition, with the advent of powerful computers and reliable software, payments are becoming more transparent and cashless.
Soon, more non-traditional and non-bank players will challenge the long-held role of incumbents. Fintechs, technology giants, eCommerce merchants, and lending institutions are now creating their digital payment offerings, blurring the lines of distinction between payment service providers and banks. The fused payment capabilities and loyalty will help businesses enhance customer experience.
How About Lending Gateways?
With the payment data of users, lending institutions and banks are now building their risk-assessment models to have credit information of individual and business borrowers. Moreover, lenders are directing mobile-point-of-sale solutions (mPOS) to cater to millennials and Gen Z consumers so as not to miss out on an essential segment of customers.
Following the new statistics, the total transaction value in the alternative lending segment is expected to reach $320 million in 2021 and $401 million by 2025. By providing flexible payment methods, lenders can win over the competition.
Surveys conducted by Statista show customers willing to use digital and mobile wallets over credit/debit cards and bank transfers increased by over 40%. Therefore, the integration of a payment gateway with the existing lending platform will attract more customers.
What is a Lending Gateway?
The lending industry is only set to grow in the years to come. Instead of visiting a local bank, would-be founders can get easy access to funds from further afield.
In a lending gateway, lenders can act as both buyers and sellers. To put this into perspective, lenders can instantaneously fund loans online by integrating lending software and payment gateway in the same offering.
An excellent lending gateway integrates updated technology in the form of API into a businesses’ SaaS tool, and from there on the technology will take care of the lending, including compliance.
However, many factors in making a gateway lending payment system for pay-in and pay-out transactions come into play. Some of them include:
1. Transaction Types
It is essential to provide all possible digital payment options to the customers. Moreover, the choice of multiple transaction types like digital wallets (like GPay, PhonePay, Paytm), credit and debit transactions, and net banking appeal to the younger customer segment, especially during the coronavirus pandemic.
2. Payment Processing Fees
It is essential to know how much to charge for setting up the software process and multiple payment solutions, including the size of the transactions. The fee charged for every transaction usually adds up to 3% of each transaction and is known as the interchange fee.
Additionally, there are other charges like statement fees to cover the lender’s expenses in sending statements, a monthly minimum fee, and a payment gateway access fee.
3. Easy Checkout from all Devices
The high rise in the usage of laptop and mobile devices in the past five years provides a good user experience in the form of easy checkouts that are receptive to all devices and network types.
4. Payment Location
The lending platform can let customers complete a transaction within the checkout processes using the gateway or lead them to another site to complete their transaction.
5. Security and Fraud Policies
Online security is a significant concern in payment gateways. It is crucial to abide by all the PCI guidelines—an information security standard for secure card payments—and biometric information for authentic transactions. Other anti-fraud and anti-theft policies need to be implemented as well for better security.
6. Technical Support
Maintaining a lending pay gateway requires high-risk processors with 24/7 support and assistance. This will help with the quick resolution of financial or technical issues.
Future of Payment Systems Integration in Digital Lending
As customers embrace the digital and mobile-first lifestyle, it is imperative to see the rise of the commercial and corporate lending industry. The turnaround time for getting a loan is significantly faster than it was a decade ago.
With the smooth integration of payment gateway in lending software (a.k.a lending gateway), it will be easy and quick to access credit and additional services, pushing lending boundaries.
Want to empower your business? Get in touch with the experts at GLaaS to know more about how you can integrate hi-tech lending solutions into your business and leverage the best value.