Accepting payments has become increasingly complex due in part to the rapid growth of online and mobile experiences, the popularity of digital wallets and an increase in recurring or subscription services. Powering all the interaction points throughout a transaction’s lifecycle requires an expanding array of technologies and networks to securely connect point-of-sale (POS) systems, websites, payment processors, bank accounts and card brands. A crucial part of the equation is the Payment Gateway. You may have casually heard the term and are wondering “What is a Payment Gateway?” or “How is it different from a Payment Processor?” This article answers those questions and takes a deeper dive into important features and benefits to help you decide what type of payment gateway is best for your business.
What is a Payment Gateway?
A Payment Gateway is the intermediate technology that securely captures, stores and transmits cardholder data from the point of capture—a credit card terminal, virtual terminal, website, online form or mobile device—to the payment processor for authorization. It communicates the acceptance or decline notification received back to the customer.
In addition to credit and debit cards, some gateways support alternative payment methods such as ACH bank transfers. Payment Gateways facilitate the transaction and validate card details and funds availability but are not involved in the movement (also known as “settlement”) of funds between the cardholder, the issuing bank and the business’s merchant bank account. That is the role of the Merchant Services Provider.
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How does a Payment Gateway Work?
A Payment Gateway acts as middleware, securely transferring cardholder data to a payment network. When shoppers make a purchase, transaction details are routed to a Payment Gateway, which is, in turn, informed by the Payment Processor whether the payment is authorized or declined. The Payment Gateway communicates the outcome to the business and customer. If approved, the funds from the cardholder’s issuing bank are deposited into the merchant’s bank account.
Types of Payment Gateways
There are a variety of payment gateways available to meet the diverse needs of businesses large and small. Some simply feature the ability to capture and transmit a credit card within a secure website form, while more robust omnichannel Payment Gateways, like PayJunction’s, accept payments presented any way via a cloud-connected platform.
The three most common types of payment gateways are:
- Redirect: Customers are taken from your online form to another site, like PayPal, to enter the payment information needed to complete online purchase transactions.
- Hosted: Hosted solutions are maintained by a gateway solutions provider, such as PayJunction, and all cardholder data is relocated and stored at a centrally-managed host within the provider’s secure data center.
- Distributed or On-premise: All payment capture and transmission happens on the business’s servers. Upgrades are typically made via downloads and onsite installations.
Payment Gateway vs. Payment Processor
The Payment Gateway is the technology that captures payment details and securely transmits the data to the Payment Processor who is responsible for connecting with the card brand networks and moving the funds from approved transactions into the business’s merchant bank account.
However, the lines can be blurred depending on the provider. Some Payment Gateways are third-party companies (middleware providers) that just provide the ability to capture and transmit the data from an online form. Businesses typically pay gateway setup, monthly and per transaction fees to the Payment Gateway Provider. These fees are in addition to the rates and fees assessed by the Merchant Account Provider.
Some companies, like PayJunction, offer a combined Merchant Account and a Payment Gateway, giving you one point of contact for all of your payment acceptance needs. This simplifies vendor management and eliminates the need to connect and certify to multiple platforms. And finger-pointing is eliminated if problems arise. You’ll have just one point of contact to answer questions or diagnose and fix any issues. Better still, having one full-service provider eliminates the need to pay separate gateway fees to a middleman. Many all-in-one providers don’t charge extra for using their payment gateway since they are earning revenue by processing the transactions.
Benefits of a Payment Gateway
Omnichannel Payment Gateways, like PayJunction’s, provide secure multi-point connectivity across all points of payment: POS systems, online forms, e-commerce shopping carts, digital invoices, recurring card-on-file transactions and more. As a result, businesses don’t have to certify and maintain numerous interfaces to accept payments in-person, online or in apps. Plus, transaction management and reporting are simplified, thanks to a consolidated view of all payment activity. And staff training is simplified since employees typically only need to learn and access one system to view and manage payment activity.
Payment Gateway Features
The features of Payment Gateways vary so it’s recommended that you do your research to find which one best fits your industry segment, acceptance channels, payment methods and integration needs.
Most Payment Gateways can be used by any business that needs to accept online payments. Some gateways have features built specifically for niche segments such as hospitality and lodging, healthcare or digital subscriptions.
Here are the most common ways that Payment Gateways can be used to securely accept payments:
- In-person: Use a cloud-connected customer-facing Smart Terminal to accept payments made via insert, swipe or tap of a card, phone or wearable device.
- Online: Add a “Pay Now,” “Buy Now,” or “Donate Now” button to your websites, emails, apps and digital statements/correspondence to direct customers to a secure Hosted Payment form — branded with your logo and colors — to enter payment details.
- E-commerce: Accept e-commerce payments connected to a choice of integrated shopping carts for a seamless checkout experience. These range from small cart plugins to full-featured e-commerce platforms aligned to meet business needs.
- Remote billing and invoices: Email customers a request to pay an invoice from any browser-connected device where they can click a link to quickly and securely enter payment details.
- Recurring/subscription payments: Set customers up on payment plans and securely store their card or bank account details on file to automatically collect scheduled payments.
- Key-entry: Use a connected Smart Terminal or a Virtual Terminal to manually enter payment details from phone and mail-in orders.
Alternative Payment Types
Credit and debit card acceptance is table stakes for online payments. However, depending on the industry, acceptance channels and average ticket, a business may need to support alternative payments and features.
- Commercial cards: Many large corporations and government agencies provide their employees with commercial credit cards to make purchases or pay invoices, which allows buyers to better track spending across their organization. Companies that do business with other businesses (B2B) or government agencies (B2G) can lower the cost of payment acceptance by working with a Payment Gateway that has the ability to capture and submit Level 2 and Level 3 data with purchase card transactions.
- ACH bank transfers: Another way to control costs is to accept ACH payments. Find out if your payment gateway supports secure account-to-account (A2A) transfers from a bank connectivity platform that simplifies the account enrollment and customer identification processes associated with ACH account setup. Ask your partner about solutions that allow businesses to activate a balance function that checks real-time funds availability, resulting in fewer rejects based on insufficient funds.
Security Features of a Payment Gateway
Protecting sensitive card data is a top priority for everyone involved in the transaction lifecycle. Any organization that processes, stores or transmits credit card data is subject to the Payment Card Industry Data Security Standard (PCI DSS). Protecting your cardholder data is imperative to your business’s success, as a breach will cost you repeat customers and future business.
Businesses that accept payments can simplify PCI Compliance by working with a PCI Level 1 payment provider like PayJunction since the onus of PCI standards falls to the gateway and processing systems hosted in their data centers.
One of the most effective ways of securing cardholder information is to tokenize the data by replacing it with a series of random data that can only be decoded at the payment processor. Cardholder data is never stored or processed in its environment. This protects the business from internal and external threats: even employees can’t access the raw payment information. Make sure your Payment gateway provider supports tokenization, especially if you store customer records and payment information for card-on-file recurring payments.
Why Do You Need a Payment Gateway?
Payment acceptance continues to evolve. A good Payment Gateway Provider keeps up with changes in technology, payment methods, security standards and more so that businesses can stay focused on taking care of their customers and growing their business.
The bigger question is “Why would you need a separate Payment Gateway?” By selecting a full-service Merchant Service provider that operates their own payment gateway, you can streamline payment acceptance across all channels, reduce the number of vendors to manage, slash some fees and have one source for all your customer support needs.
How to Integrate with a Payment Gateway
It’s important to integrate your software with the right payment partner so you can save time, boost productivity and simplify end-of-day accounting and reconciliation practices. Find a partner that makes it easy to add payment solutions into your core software. Providers should offer friendly tools and resources including a cloud-based payment API, a modern tech stack, a solid self-service developer journey and an experienced team of real people ready to help.
If you’re accepting in-person payments, look for a payment gateway provider that offers a semi-integrated payment solution, which speeds time to market and reduces complexity.
How to Choose a Payment Gateway
Picking the best Payment Gateway is crucial to keeping your payments as streamlined as possible. Select a Merchant Services provider that offers an all-in-one Virtual Terminal and Payment Gateway Platform. You’ll have one source for processing, reports and statements, and customer support. You will also eliminate the complexities and extra fees associated with managing multiple gateway vendors, payment providers and PCI compliance validation.
Look for these five elements when choosing a Payment Gateway:
- All-in-One Service: By choosing a gateway that is also a Merchant Account provider, you can consolidate relationships, save money, and gain transparency into processing rates and fees.
- Omnichannel Capabilities: Don’t box yourself in based on current payment acceptance channels. Find a provider that can handle both your card-present and card-not-present transactions. This feature is great for brick-and-mortar stores looking to increase their online presence as well as lean startups that went straight to e-commerce sales and plan to open a storefront someday.
- No Additional Payment Gateway Fee: A full-service provider won’t tack on additional fees to accept transactions from your stores and websites.
- Transparent Interchange-Plus Pricing: Interchange-plus pricing plans provide clearly outlined fees and terms based on the card brands’ published Interchange rates. Providers add a small markup to operate their business and maintain their data and operations centers.
- Live U.S.-based Support: Who can you turn to if you encounter a problem during the integration process? What if a customer has a question about a transaction? Chatbots and emails can be frustrating. We recommend partnering with a company such as PayJunction that offers live support for software providers and businesses.
How PayJunction Can Help
PayJunction simplifies payment acceptance no matter where it takes place: in-store, online, via invoices, recurring payments or over the phone. Our full-service model combines a modern Payment Gateway with a Merchant Account, giving you one point of contact for all your payment needs. Developer-friendly tools make integration fast and simple, and our transparent, ethical pricing and month-to-month contracts extend peace of mind.