For people who have a merchant account, payment gateway is not an unknown word; but it might be confusing to others, who are just thinking about opening a merchant account. Payment gateway is a very important thing when we are talking about electronic commerce, because it is an application which protects all the important information. In other words, it encrypts the information from a credit card, this way making sure that only the information does not get in the hands of an unauthorized third party.
People pay by credit card all the time when they purchase something from the internet, knowing that their personal information is safe; no one can have access to it. But they do not know what the procedure is: a payment gateway is like a POS (physical point of sale) machine, which you can find in every store where you can pay by credit card. But how does that work in case of online buying? Let us discuss how payment gateways work!
When people buy something from the internet, the payment gateway makes the transaction secure, but how does it happen? The first step is taken by the customer when he or she places her order on a certain website. As soon the information arrives to the merchant, he will send the transaction details to the payment gateway. Now the payment gateway sends the received information to the processor used by the merchant’s bank. All these transactions are encrypted: from the client to the merchant, from the merchant to the payment gateway and from the payment gateway to the merchant’s bank.
The information does not stop there: the client’s credit card number has to reach the client’s bank and the bank has to confirm that the client has enough funds to pay for the purchased goods. If the client has enough funds, the bank will issue an answer, which will go on the same route as the request: client’s bank, the processor, the payment gateway and finally the answer will be shown on the website. It might seem unbelievable, but this whole process takes only a few seconds. This is only the simplest operation processed by a payment gateway, there are many other things a payment gateway can do: provide tools to automatically screen the orders for fraud (like computer fingerprinting or even delivery address verification), to calculate tax and so on. As you can see, buying goods from the internet without a payment gateway would be a lot less secure and would take much more time.
If it is still hard to imagine what a payment gateway does, then here is another explanation: a payment gateway is an intermediary between the merchant and all the financial networks included in the transaction, including of course the customer too. In most of the cases, when they want to buy goods from the internet, customers have to click on a shopping cart icon, or on an Order button. This is a separate application, and if the merchant did not buy the good ‘shopping cart package’, it might be incompatible with the payment gateway. Customers should not worry about this problem, but merchants should be careful and they should make sure that the payment gateway and the shopping cart application are compatible.
All in all, payment gateway makes it possible to buy goods from the internet safe and makes sure that the transaction will take place in only a few seconds; thus it is a very important part of electronic commerce.