Businesses that sell products or services will likely need a payment gateway to secure transactions between them and their customers, though all-in-one solutions for payment services that don’t require a separate payment gateway are common. Here’s more about how a payment gateway works and why it’s an important part of the online shopping experience.
Definition and Examples of a Payment Gateway
A payment gateway securely transmits customer data, including bank information or credit card details, to the payment processor. It is the online equivalent of a point of sale (POS) terminal. A payment gateway is the first step in finalizing an online purchase. Payment gateway providers, which most businesses use in order to process online purchases, are common and easily recognizable. Some examples include PayPal, Square, Stripe, Authorize.net, Braintree, WePay, and 2Checkout.
How a Payment Gateway Works
When you make a purchase from a merchant’s website with a debit or credit card, you enter the card information into a hosted checkout form (the payment gateway) on the website or mobile app. Once you click a button to place your order, the payment gateway springs into action. It transmits the card information securely to the payment processor. At this point, the payment processor takes over and relays your information to the issuing bank, which then approves or denies the request. If approved, the payment processor connects your bank to the business’s merchant account and transfers the funds. The payment gateway comes back into play at this point. Once the transaction is approved and funds are transferred, the payment gateway returns the information from the processor to the merchant’s website. The merchant will see whether or not the charge has been authorized and completed.
Do I Need a Payment Gateway?
Merchants who accept payments online need a payment gateway in order to verify a customer’s credit card information, process payments, and settle transactions. Theoretically, businesses that only have physical locations could opt out of a payment gateway. However, most businesses offer some type of online experience, and a payment gateway is necessary for e-commerce transactions. All-in-one options for payment gateway solutions are common. Some merchant account vendors (like Shopify) offer turnkey products that don’t require a separate payment gateway. Square is another provider with an end-to-end payment processing system where a separate payment gateway is not required.
How Much Does a Payment Gateway Cost?
Depending on a business’s needs and requirements, average costs for a payment gateway range between $0 and $25 per month in fees. Gateway fees are around 10 cents per credit card payment.
Payment Gateway vs. Payment Processor
A payment gateway has different functions than a payment processor. A payment gateway serves to securely move the transaction to the payment processor. A payment processor sends a customer’s credit card information to the bank, processes approval or denial, connects the customer’s bank to a business’s merchant account, and transfers the funds.
