Choosing a payment gateway for any business can be an important decision – as crucial as pricing your products or even marketing your business. And while their primary function is to facilitate communication within banks, the truth is that gateways are much more than just software that accepts payments. In today’s digital world, the speed, safety, and security of each transaction is of the utmost importance and gateways play a huge role in helping to ensure that.
In the simplest of terms, a payment gateway is a third party-hosted payment software solution that allows for the transfer of payment information between a payment portal (such as a website or smart phone) and a bank. It’s essentially a merchant service provided by an e-commerce service provider that authorizes payments by credit cards, debit cards, or direct payments for any business, whether it’s online or brick and mortar. Furthermore, all merchants are required to have one if they accept payments besides cash and checks.
Payment gateways can be provided by a bank if the bank is handling the merchant’s processing, but may also be provided by a specialized financial service provider as a separate service, such as a payment processor.
Gateway Transaction Process
The payment transaction process begins when a user submits an order (online or in-store). Payment gateway software then goes to work by communicating and exchanging personal information that involves many steps in order to accept the payment while verifying the availability of funds and the authenticity of the user, among others.
The bulk of the transaction process takes a very short of time – typically just a couple of seconds as the gateway first communicates with an acquiring bank, then a credit card association (Visa MasterCard, etc.), and next, an issuing bank. The issuing bank will either “approve” or “decline” a payment and then sends the approval or denial to a payment processor who then relays all of that information back to the gateway at the merchant level.
After that, any remaining steps in the process generally involve work on the merchant’s end to fulfill an order and finalize a transaction (this is usually when the customer receives the order or as soon as it has been shipped to a customer).
When it’s all said and done, the entire process from payment authorization to bank settlement to when a merchant receives the funds, usually takes approximately three days.
A Matter of Security
Payment gateways utilize industry-standard encryption software to protect sensitive data, resulting in safer transactions and helping to protect both merchants and consumers from fraud or other security breaches.
Jason Holderness, Chief Technology Officer at National Merchants Association, explains the importance of having a gateway that offers the latest in data security: “Having a PCI-compliant gateway is one of the best and most secure ways to do business online, not to mention that it’s now required in order to process EMV (chip) cards.” PCI compliance ensures that a merchant’s payment system meets the safety and privacy standards set by the Payment Card Industry Data Security Standard (PCI DSS) and, as Holderness mentions, is now mandatory if your store plans on accepting credit cards.
The added security of an up-to-date and PCI compliant gateway gives merchants peace of mind when doing business online, especially with customers living in other countries, which can also aid in expanding a customer base.
More Than Accepting Payments
Another advantage of gateways is that they provide the added convenience of allowing an online store to remain open at all hours giving customers the opportunity to shop day or night from the comfort of their own homes.
Faster transaction processing is another plus of payment gateways, as they are much quicker than manual processing methods. For example, customers can make purchases at your store (both online and brick and mortar) without having to wait for the delay of conventional systems and waiting in line for long periods of time.
Many gateways offer all-in-one solutions designed to streamline the transaction process while (hopefully) saving merchants money on transaction costs. Holderness agrees that having a modern gateway that also offers payment processing is a luxury that most merchants should look into, saying, “Communication is much easier because you’re dealing with one company and troubleshooting any issues is also easier. This saves a lot of time and hassle.” As far as helping merchants save money, he adds, “Often times, when gateway and processing services are bundled together, merchants can enjoy better rates than if they had separate companies perform each duty.”
National Merchants Association is an industry-leading payment processor that also provides gateway service solutions for a variety of business models. Need more information about gateways and how we can help your business? Feel free to contact NMA today!