If you’ve ever sold something online, you probably used a payment gateway. It’s the service that lets you accept credit card payments on your website, and it’s one of the most important tools for taking ecommerce orders.
This article will explain how a payment gateway works and why they are so valuable to merchants.
What is a Payment Gateway? Why Does it Matter?
Think of it this way: a payment gateway is the bridge between your customers and your merchant account.
The purpose of a payment gateway is to:
- Process transactions through your bank account securely and quickly.
- Prevent you from having sensitive credit card information stored on your server.
- Send you a copy of all transactions so you can reconcile how much you’ve made in sales with how much is going into your bank account.
The payment gateway helps to verify the authenticity of a credit card’s details and acceptance of payments. The gateway may also be called an e-commerce gateway or online transaction processing (OTP) system.
Payment gateways ensure that information such as credit card numbers and bank account details are stored securely, transmitted securely and received by the merchant or banking institution securely.
How Does a Gateway Work?
The gateway sits between the customer and the merchant, receiving payments on behalf of the merchant. All payment-processing service providers have a different way of doing it, but they all work in a similar manner.
- First, a customer puts in his name, credit card number and contact information.
- Then he selects a shipping address and decides on a preferred delivery method.
- The gateway then communicates with the credit card company to ensure that the transaction is authorized and funds are available.
- It also verifies that the customer is at least 18 years old and has provided accurate information to prevent fraud.
- Finally, the gateway transmits this information back to e-commerce businesses for processing.
The next step is to process the order through your online store. The way you do this will vary depending on what software you’re using, but most likely, you’ll be instructed to process each customer’s order manually in your web-based shopping cart.
The bottom line
As you can see, there’s a lot to learn about payment gateways. But once you’re familiar with what they do, how they work, and why they’re so important, choosing the best payment gateway for your business will be much easier.
Content crafter Alex Wilmont has been active in the payments industry for over 15 years. He lives simply, gives generously and loves his 2 dogs. His mission is to enhance and innovate the fintech industry through Pinwheel Pay for years to come.