The Digital Transaction Process, Players & Shopify’s Role:
Before going into how Shopify creates value in payments, it’s imperative to understand the process, its players and how the firm fits into the full equation.
Checkout begins when a customer finishes filling their online basket and is ready to pay for their selections. The customer can enter in credit/debit card information manually, or can use a payments provider like Shopify Payments to have the data auto-populated once an account has been created. After a payment method is selected and the data is entered, the card and all identifiable account information is encrypted (AKA tokenized) by what’s called a gateway service. Shopify Payments offers a gateway. This can effectively be considered a digital point of sale (POS) system or a high-tech, digital cash register during the checkout process.
- Tokenization definition: Process of anonymizing sensitive card data by converting it to a string of continuously generated numbers called a token. This is very similar to encryption and the two terms are often used interchangeably.
A gateway offers many of the essential software connections to the rest of the landscape. It plugs a merchant’s site into online payment processors, integrates into card networks and connects to digital wallets to power consumer payment optionality. It’s needed for any online sales presence. Gateways also provide payment vaulting databases which serve as encrypted storage systems of consumer information. That’s how shoppers can speed through checkout without entering in card and address data each time.
Post-gateway data collection and encryption, this information is sent to a payment processor. Processors conduct most of the transaction authenticating to ensure its legitimacy and legality. It’s the work horse of the equation and the second required merchant connection -- this time between gateways and the merchant’s bank. A processor moves the transaction funds through its network and back again, facilitates the settlement of funds and authenticates. Shopify Payments offers processing through a partnership with Stripe rather than doing so on its own.