The Role of the Payment Gateway

The role of the payment gateway is vital to ecommerce. Without a payment gateway, credit card payments cannot be processed online.

What is a payment gateway?

Payment gateways provide an essential service for credit card transactions. They facilitate these kinds of transactions by transferring information between payment portals and the payment processor or bank. To a consumer, the payment gateway seems pretty straightforward. It’s just a matter of visiting an ecommerce site, selecting items to be bought, adding them to the cart, and proceeding to checkout where the card payment information entered, and that’s that, with the payment gateway invisible to the customer. Behind the scenes it gets a little more complicated, which is what ecommerce business owners should be aware of. The payment process undergoes several steps to finalize a transaction:

1. The customer enters their payment information when placing an order online. This is processed as a card-not-present transaction. The submitted information is encrypted and sent on its way.
2. The encrypted information is first sent to the merchant’s payment processor.
3. The processor then routes the data to the credit card issuing bank in order for the
   transaction to be approved or denied. For a transaction to be approved the credit card used needs to be valid and contain enough funds for the transaction.
4. The transaction is authorized or declined, and the issuing bank sends the authorization back to the ecommerce site via the payment gateway or returns a message that the transaction was declined.

A payment processor and a payment gateway – what’s the difference?

A payment processor actually transfers the funds and underwrites the transaction.  A payment gateway is simply a messenger that connects the Internet to the traditional banking network.  Thus, the payment gateway facilitates the transfer of data to and from the payment processor. A payment gateway is a software service, whereas a merchant will contract with a payment processor to handle payment transactions.

The functions of payment gateways

Payment gateways perform several functions as well as their primary payment data transfer and authorization function.

• Encryption: payment gateways use high-security encryption to secure sensitive payment information.
• Fraud screening: payment processors may screen orders with numerous tools to help prevent fraudulent payments.
• Payment information storage: encrypted storage of payment data so that the customer does not have to re-enter their information every time.
• Recurring billing: payment gateways can facilitate subscription-based pricing and automated recurring payments when authorized by a cardholder.
• PCI compliance: all legitimate payment gateways are PCI compliant, meaning they adhere to card industry safety and security regulations.
• Integration: payment gateways are able to integrate with other tools such as accounting software or online shopping carts.
• API tools: payment gateways often offer the ability for developers to customize them for specific needs.

The importance of a payment gateway

If you sell goods or services online, then a payment gateway is essential – without it, you cannot accept online credit card payments.

For more information about the role of the payment gateway or to sign up for a merchant account, please call (888) 924-2743 or go to Charge.com.