What is a Payment Gateway? – Introduction

by Jun 19, 2013Online/Internet/Ecommerce

Simply put, a payment gateway is an online software program.

It serves the purpose of securely passing sensitive data between the consumer and your business and also from your business to the merchant account provider.

Said differently, it’s a virtual bridge that sends cardholder data though the circular transaction cycle all the while keeping the credit card information secure and safe.

Depending on how the gateway is used, your customers may never see the presence of the gateway solution that you choose to use.

Let’s look at some of the options.

 

Ways To Use Your Gateway

The ways to use a payment gateway depends on the nature of your business and how you interact with your customers. How do your customers buy from you?

Online or retail setting?

Do you use a dedicated credit card terminal (like a Verifone VX510 for example) or do you sell products/service online? Or both?

Here’s the 3 main ways to use an internet payment gateway:

  • As a virtual terminal (with optional recurring payment capabilities)
  • To integrate into an online shopping cart system giving your customers the ability to buy from your website 24 hours a day
  • As a bridge between a retail POS computer system often used in restaurants or high volume retail stores

Perhaps one of the biggest benefits of using a payment gateway is that at the time of the sale, cardholder data will be securely stored while your customer’s transactions are being processed.

Using a gateway ensures that cardholder data is encrypted properly, thus putting the liability of a data breach on the shoulders of the gateway provider, NOT you.

 

Merchant Account Must

You can have a merchant account without a payment gateway, but opening a payment gateway account without a merchant account is like having a car without gas in it.

If you have a merchant account you can use a stand alone credit card terminal such as a Verifone VX510 and never be required to use an internet payment gateway.

However, you can’t use a payment gateway without a merchant account.

If your business needs fall into one of the three main uses that I mentioned above then a payment gateway could be a good fit for you.

 

Gateways are 3rd Parties

Sometimes, but not always.

Some merchant account providers own their own payment gateway solution which is then strongly suggested to you as a requirement to use their merchant account service. But it doesn’t have to be that way.

It’s kind of like going to the movies and bringing your own popcorn. The movie theater sells popcorn so they frown upon you bringing your own, but you could do it if you really wanted to.

Other merchant account providers simply partner with 3rd party gateway providers. A company like www.nmi.com for example does NOT offer merchant account processing. You would only know that they exist while setting up your merchant account with a payment professional.

On the other side of the coin, you may have heard of a company called www.authorize.net. They are a payment gateway company that also offers credit card processing. They are a gateway company first, and a reseller of merchant accounts second.

In other words, their expertise is the payment gateway, NOT to service your merchant account.

 

Wrapping Up

Payment gateways give you great flexibility to process transactions, in conjunction with other POS software, online shopping carts, or as a stand alone terminal solution.

Options of use are offered in a variety of formats. Understanding the relationship between a merchant account and a payment gateway is important as you will want to align yourself with someone who is able to service both of them.

Brian Manning

Bancardsales founder and 15 year payment processing veteran, Brian Manning has helped thousands of businesses streamline their electronic payment systems. With a healthy disdain for things like terminal leases and "lowest rate" guarantees he regularly advises on best practices to anyone setting up merchant account related solutions. Brian's mission and passion is to help business owners use their merchant account simply as one tool in the big picture of growing their own business and creating an experience that is positive and meaningful for their customers.

Brian Manning

Bancardsales founder and 15 year payment processing veteran, Brian Manning has helped thousands of businesses streamline their electronic payment systems. With a healthy disdain for things like terminal leases and "lowest rate" guarantees he regularly advises on best practices to anyone setting up merchant account related solutions. Brian's mission and passion is to help business owners use their merchant account simply as one tool in the big picture of growing their own business and creating an experience that is positive and meaningful for their customers.

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