How Payment Gateways Work
The Web2 vs. Web3 Difference
Dec 9, 2024
A deep dive into the mechanics of payment gateways, comparing the slow, intermediary-heavy Web2 model with Gecko Vision's fast, direct, and chargeback-free Web3 model.
In this post we'll cover:
Understanding how a payment gateway works is crucial for any e-commerce merchant. It allows you to identify where the fees, delays, and risks (like chargebacks) originate.
We can break down the world of payment gateways into two distinct eras: Web2 (Traditional) and Web3 (Next-Generation).
The Web2 Payment Gateway: The Intermediary Chain
The traditional payment gateway acts as a complex switchboard, connecting your customer's bank to your merchant bank. This process is slow and expensive because it involves many intermediaries, each taking a cut and adding a layer of risk.
The 7-Step Web2 Payment Flow
- Customer: Initiates payment with a credit card.
- Merchant: Sends transaction data to the Payment Gateway (e.g., Stripe).
- Gateway: Sends data to the Payment Processor.
- Processor: Sends data to the Card Network (e.g., Visa/Mastercard).
- Network: Sends data to the Issuing Bank (customer's bank) for approval.
- Issuing Bank: Approves or declines the transaction.
- Settlement: The money travels back through the chain, taking 3-7 days, with each intermediary deducting their fee.
The Problem: This chain is the source of high fees, slow settlement, and the fundamental flaw of chargebacks. If the customer disputes the charge, the money is reversed back through this chain, and the merchant is penalized.
The Web3 Payment Gateway: The Direct Rail
The Web3 payment gateway, as implemented by Gecko Vision, is fundamentally different. It uses the blockchain as a direct, peer-to-peer rail, eliminating most of the intermediaries.
The 3-Step Web3 Payment Flow (Gecko Vision)
- Customer: Initiates payment (using their preferred method, which Gecko Vision handles).
- Gecko Vision Gateway: Uses Account Abstraction to convert the payment into Digital USD (USDC) and sends it directly to the merchant's Smart Wallet on the blockchain.
- Settlement: The transaction is confirmed on the blockchain in seconds.
| Feature | Web2 Gateway (Traditional) | Web3 Gateway (Gecko Vision) |
|---|---|---|
| Intermediaries | Many (Processor, Network, Banks) | Few (Blockchain, Gecko Vision) |
| Settlement Time | 3-7 Days | Seconds |
| Fees | 2.9% + $0.30 to 5%+ | 1.5% Flat Fee |
| Chargebacks | High Risk | Zero Card Chargebacks (Irreversible) |
| Cash Flow | Restricted | Instant |
The Gecko Vision Difference: Abstraction and Finality
First-generation Web3 gateways (like Helio) were a hybrid, still requiring the customer to have a crypto wallet. Gecko Vision's next-generation approach uses Account Abstraction to deliver the full Web3 benefit without the Web3 friction.
- Abstraction: The customer's experience is Web2-simple, but the merchant receives the Web3 benefit.
- Finality: The irreversible nature of the blockchain means the transaction is final, eliminating the risk of a third party reversing the payment.
Conclusion
The traditional payment gateway model is a relic of the past, built for a world without instant, global, digital currency. The Web3 model, powered by Gecko Vision, is a direct, low-cost, and secure rail that puts the merchant in control of their revenue.
Choosing a payment gateway is choosing your financial future. Choose the one built for speed, security, and finality.
Ready to upgrade your payment gateway? See how Gecko Vision's Web3 rail can eliminate chargebacks and deliver instant payouts. Join our waitlist and future-proof your business.