Payment gateways 101: what they are and why you need one.

Payment gateways 101: what they are and why you need one.

Credit and debit cards currently dominate the payment landscape and will continue to do so until at least 2022. Collective use is expected to remain high at 52% and may climb even higher as Generation Z begins exercising more purchasing power. A payment gateway equips your business to take full advantage of the persisting power of plastic.

What is a payment gateway?

A payment gateway is an ecommerce application that acts as a bridge between payment processors and merchant accounts. When a customer makes a purchase, a payment gateway handles all the information associated with transferring transaction data between other parties involved in payment processing, ensuring that the money is delivered to your merchant account. Without a payment gateway, transactions can’t be finalized and you can’t get paid.

Payment gateways also handle security and privacy by encrypting credit card information during transfer and processing. This is necessary to maintain PCI compliance and prevent hackers from gaining access to sensitive customer data.

How payment gateways work.

Payment processing is a complex system with multiple steps, all of which occur in the brief moment between when a customer inputs card information and when the transaction is finalized. If you could watch the entire process happening, here’s what you’d see:

  • A customer makes a purchase on your website and inputs his or her credit card information.
  • Encrypted and tokenized credit card data travels through the payment gateway to the payment processor.
  • The payment processor sends the transaction information to the appropriate card network.
  • Information passes from the card network to the issuing bank for authorization.
  • The issuing bank checks for any evidence of fraud and ensures enough credit is available before approving or declining the transaction.

Once these actions have been completed, transaction data travels back in the other direction. When it reaches the payment gateway, the transaction is finalized and becomes an official sale.

Payment gateway costs.

Nearly every step in payment processing has a fee associated with it. Payment gateways are no exception. The fee structure depends on whether you use a separate merchant account provider, payment gateway and online cart, or an all-in-one payment processing solution. Online payments qualify as “card-not-present” transactions, which have higher fees than transactions that are processed in person.

If you connect a payment gateway to an existing merchant account and integrate it with your website, you’ll pay fees on top of your existing expenses for these services. If the gateway is part of a complete solution, you may pay a monthly use fee, individual transaction fees, or both.

Additional payment gateway costs may include:

  • Setup fees.
  • Registration fees.
  • Chargeback fees.
  • Cancellation fees.

You may have the option of integrating with other solutions, such as a virtual terminal, for an additional charge. At Total Merchant Services, we offer free access to our Virtual Terminal through Payments Hub, our secure, online merchant portal. 

Benefits of a payment gateway.

The ability to accept online payments is the most obvious perk of setting up a payment gateway. Creating a bridge between your merchant account and an online shopping cart or ecommerce platform instantly expands your brand’s potential reach beyond your physical store. It also enables you to incorporate new payment and sales options, such as:

  • Subscriptions.
  • Recurring payments for ongoing services.
  • Mobile payments through a card reader or virtual terminal.

Some payment gateways connect to popular accounting software to eliminate silos between in-store and online sales information. Having all of your sales data in the same place simplifies the bookkeeping process and reduces problems associated with errors in manual data transfer.

For customers, a payment gateway offers the freedom and flexibility to choose between multiple payment options. Every payment is secure regardless of type, which gives customers peace of mind, builds trust, and has a positive effect on brand loyalty.

Customers also benefit from improved shopping and checkout experiences. Payment gateways may be set up to integrate directly with your website for seamless transactions from beginning to end, or may redirect customers to a familiar third-party gateway to complete their transactions. Both options are fast, simple, and fairly frictionless. Either way, you win, as customers prefer shopping with brands that are able to provide such experiences and are more likely to return to make more purchases if their initial impressions are positive.

How to find the right payment gateway solution.

Choosing the right payment gateway can have a significant impact on your bottom line. Customers who have great experiences spend 140% more than those whose experiences are negative, and it can cost up to 33% less to serve customers when you focus on improving their experiences. 

How do you find a payment gateway with the ability to deliver such stellar results? Follow this plan of attack. 

  • Select your setup. Decide if you want to link a payment gateway to your existing merchant account or switch to a POS system designed to handle all aspects of payment processing. If you do business solely online, choose whether to use an integrated onsite gateway or a hosted third-party solution.
  • Calculate the costs. High fees take too much from each transaction and can hurt your bottom line.
  • Be flexible. The more payment options you can offer to customers, the better.
  • Assess the security. Look for a PCI-compliant gateway provider using strong fraud prevention measures and SSL encryption to protect customer data.
  • Consider additional features. Do you need a virtual terminal to accept payments over the phone or on your mobile device? Does your business model include recurring or subscription services? Make sure your payment gateway supports these options.
  • Check out customer support. Since online purchases depend on the proper gateway function, customer support should always be available to help if something goes wrong.

Integrating a payment gateway with your merchant account opens the door to accepting online payments. Your customers get the freedom to make purchases on your website using their favorite payment methods, and you enjoy the flexibility of selling through multiple channels. Start growing your ecommerce sales today. Let Total Merchant Services tell you more about our seamless connectivity to 7 online payment gateways. Call 844.251.8740