Online credit processing has a lot of turning wheels that make fast and seamless financial transactions possible and one of those wheels is the payment gateway. Payment gateways make it possible to buy stuff online securely and conveniently from the comfort of your home using credit cards. So what exactly is a payment gateway and how does gateway credit card processing work?
What is a payment gateway?
A payment gateway is a software that connects the website or online store of an eCommerce merchant to the bank that authorizes or decline’s a credit card payment. Some payment gateways are also designed to take other types of payments including e-checks and debit cards.
The payment gateway functions pretty much the same way as a credit card terminal used to take physical payment. The main purpose of a payment gateway is to transmit payment information securely to the issuing bank and other parties involved in a credit card transaction. The gateway also reports back the status of the transaction (whether it was declined or approved) back to the merchant.
What is Gateway Credit Card Processing?
When a customer visits a merchant’s eCommerce website to place an order, the payment gateway collects the transaction details such as the price of goods purchased and the credit card number. All of this information is encrypted and then transmitted to the merchant’s bank or a third-party processor in charge of the merchant account. This information is transmitted to the card association and subsequently to the card-issuing bank (the customer’s bank) to approve the transaction. The payment gateway also receives the status of the transaction through the same route (issuing bank to card association to merchant bank or processor and bank to the gateway) which can either be an approval or denial of the transaction.
If the transaction is authorized, funds are released by the issuing bank to the merchant’s bank and the payment for the purchase is made into the merchant’s account after removing the transaction processing fee.
Types Of Online Payment Gateways
A payment gateway can be a redirect-gateway, onsite checkout with offsite payment processing, or full onsite-checkout and processing.
A redirect-gateway is separate from the merchant’s website. Instead, when the customer making the purchase checks out, he/she is redirected to the payment gateway’s website to complete the transaction. This is the simplest and cheapest form of payment gateway.
The second method involves on-site checkout with an off-site payment process. In this case, the customer completes the checkout on the merchant’s website before being directed to the payment gateway to process the transaction. A typical example of this type of payment gateway is Stripe.
In the final method, all processes (checkout and processing) are completed on the merchant website. This involves an onsite integration of the payment gateway into the eCommerce website. Large businesses with enough resources typically prefer this method since this method gives them complete control over the checkout process and they can deliver a preferred experience to their customers.
As a merchant that intends to take online payments, the importance of choosing the right payment gateway cannot be overemphasized. The cost of processing your online payment varies from one payment gateway provider to the other. Payment gateways also determine the security of transaction information and the stability of services during checkout.