In simple terms, a payment gateway is a program that transmits an online customer’s credit card order to and from a bank or the merchant account provider.
Wikipedia defines a payment gateway like this: “A payment gateway is an e-commerce application service provider service that authorizes credit card payments for e-businesses, online retailers, bricks and clicks, or traditional brick and mortar. A payment gateway facilitates the transfer of information between a payment portal (such as a website, mobile phone or interactive voice response service) and the Front End Processor or acquiring bank.”
If you are looking at accepting real-time credit cards on your website then a payment gateway is required.
There are three main requirements for a payment gateway to work:
- A website that meets the security and eligibility requirements for the bank to issue a merchant account
- A payment gateway provider. Payment gateway providers offer the server that acts as the link between your website and the bank. The server has a very special configuration and a very high level of security due to the sensitive nature of the data being transferred.
Once all three requirements are met, the payment gateway then needs to be connected to the website and to the merchant account. This will then allow for real-time credit card processing.
The merchant processor is a service that handles the actual funds transfer and is responsible for charging credit and debit cards. Merchant processors can process payments in a variety of ways and are not limited to credit or debit cards. Other methods could involve direct bank-to-bank transfers, intermediary holding accounts, and even mobile payments. Examples of merchant processors include Stripe.com, Authorize.net, PayPal, and 2Checkout.
There are several factors to consider when choosing a merchant processor and gateway, on deciding which one to give preference to.
- Is the merchant processor available in your country of operations?
- Does the merchant processor support all necessary billing features (one-time transactions, recurring billing, pre-authorised charges etc.)?
- How do the fees compare to other merchant processors?
- Does the eCommerce system you are using support the merchant processor you wish to use?
Choosing a payment gateway can be one of the most important decisions you make when setting up your store, so it is important to consider the options carefully.