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What Is Payment Gateway?

By
Rachel Swearingen
Table of Contents

If you ever issued an eCommerce payment or accept payments online, then that payment went through something called a payment gateway. A payment gateway is used to capture and transfer all data associated with the payment from the customer to the business, and then sends back information on whether the payment was accepted or not back to the customer. In other words, it’s the virtual version of a credit or debit card reader that you use in a store.

These gateways are an essential part of online direct to consumer and B2B payments, as they keep the data secure and encrypted throughout the entire process. Learn more about payment gateways and why owners of any types of ecommerce businesses would need to know about their main functions.

eCommerce Payment Gateway

You may be wondering just why exactly you’d need a payment gateway. For eCommerce especially, it’s an essential piece of the process. When a customer pays in-store, it’s easy to verify whether or not the card they’re paying with belongs to them. Online, however, is a different story. There’s no physical terminal for them to swipe a card, so you’re relying on them to accurately enter their card information.

A payment gateway will go over their information and verify that everything was entered correctly. It also helps to protect against fraudulent transactions. This payment gateway for your website will help your business process reputable transactions and protect you and your customers. Think of it as a middleman performing the transaction and verifying data so an eCheck payment or other payments don’t bounce. 

Credit Card Payment Gateway

Keeping card information secure and protecting your business from fraud is the key function of a payment gateway, especially when working with credit cards. An online credit card payment is conducted as a card-not-present transaction since there is no cashier physically present to verify that the credit card is being used properly and by the right person. This gateway between you and the customer keeps both of you protected whenever someone is choosing to pay with a credit card. 

It also helps in debit card transactions too. Customers can feel secure paying on your site with a debit card knowing that you’re giving them a truly secure and encrypted payment experience. If that wasn’t the case, you could end up losing sales and trust as people would go elsewhere to find a secure payment process. 

Maintaining PCI Compliance

Once the customer proceeds to your website and chooses the product they want, they then go to the checkout where they are presented with options to buy. It could be  recurring credit card payments, ACH payment, credit card payment, or others. In order to maintain PCI compliance, you need this step within the purchase process. Any company accepting credit cards should be adhering to all the rules for PCI compliance, as it can end up hurting you if you don’t. If you’re using a product like Bluecart, then all of this is automatically set up for you and you don’t have to worry about any of it.

Payment Gateway vs. Payment Processor

While you may hear the terms payment gateway and payment processor often as a business owner, it’s important to understand the difference. In every transaction, four parties are involved: you, your customer, your customer’s bank, and your bank. Processing these transactions involves both a payment gateway and a payment processor. 

A payment processor’s role in a physical transaction is to transmit the data between your bank and your customer’s bank. They usually also provide the credit card machines or a point of sale (POS system) terminal you have at your register. A payment gateway is used to securely transmit online payment data from your customer’s bank to your bank and to authorize eCommerce transactions. Payment gateways use SSL encryption to successfully and securely deliver the customer’s credit card information to the issuing bank. Once it arrives at the bank, the gateway then decodes the data so the bank can either approve or deny the transaction. Many times, the gateway will also look at the physical location of the computer and the customer’s recent activity in an attempt to detect fraud.

Essentially, if you’re going to operate both brick-and-mortar facilities and an eCommerce site, then you need both a payment processor and a payment gateway for secure transactions.

Merchant Account vs. Payment Gateway

Another necessity for any business selling online is a merchant account. You’ve likely heard this term mentioned in conjunction with payment gateways and payment processors. When you use a payment gateway, the gateway deposits your payments into that merchant account. A merchant account is not your business bank account, though. It’s actually considered a sort of holding place for eCommerce deposits. 

Money made when you sell online is not automatically deposited into your bank account because sometimes a customer requests a return. When that return is processed, the funds are pulled from that merchant account. Whatever is left is then deposited into your account. Additionally, you may be getting deposits from several sources, and rather than make multiple deposits at a time, the merchant account will assemble all the funds and deposit them at once for you. 

Getting a merchant account is best done through a full-service online payment solutions provider, although some will not give you that option and will have you try to seek it out on your own. Instead of doing that, it’s recommended to find one that will give you all the elements needed for successful online transactions so that your business can continue running smoothly without any issues.

How to Get a Payment Gateway Set Up

If you are trying to set up eCommerce on your own, then there are several third-party providers who will offer you a payment gateway. This will be an extra monthly fee on top of everything else you’re already paying for your online business. An easier way to obtain a payment gateway is to go with a payment processing provider like BlueCart who will provide everything you need in a secure environment with one easy fee. Set up a free demonstration today.

BlueCart is the best subscription billing platform. We have some of the industry’s lowest fees and bank-level security all integrated into a wholesale, ecommerce, and subscriptions platform. You can even set your invoices to net 30 terms or allow prepayment right in the platform.