Payment gateways are one of the cornerstones of online commerce, creating a secure channel through which customers can connect to and transfer funds directly into your business during transactions. Similar to how POS systems or card readers at physical locations transfer data from customer credit and debit cards in order to process payment, payment gateways make sure you get paid.
At the time of an online transaction, your customer will complete an online form on your website to provide their payment details – such as their name, card type, CVV code and expiration date. After they submit this data through your gateway system, it will be sent off to their card issuer for validation and fraud detection procedures to check whether or not there are sufficient funds in their account for this purchase. Once verified by their issuing bank, this message will either approve or decline payment via their gateway and merchant bank.
Once a transaction has been approved, the gateway will transfer funds directly from credit cards to your merchant bank account – usually instantly but can take up to 24 hours depending on individual bank policies and processing times. It will also notify customers about their status of transaction with an available link to view details either online or on their statement.
Gateways may either be hosted directly on your site, or external services can host them for you. Hosted gateways require customers to be taken away from your checkout page to use an external payment portal – this may cause some buyers to abandon the sale altogether and impact conversion. Non-hosted gateways, on the other hand, can integrate seamlessly with checkout pages for an uninterrupted customer experience.
Though all payment gateways must comply with PCI security regulations, not all are created equal. Some may provide more comprehensive fraud screening tools than others; choose one with adequate protections for your customers’ sensitive financial data. In addition, look for one compatible with your business model and product types; some gateways do not work with sellers of adult materials or gaming products.
Though many gateway solutions offer competitive pricing, it is still essential to factor in all fees involved when making your selection. Gateways typically charge monthly and per-transaction fees; additional set-up fees can quickly add up. For maximum savings on payments costs, seek out solutions with flat monthly fees and lower per transaction rates.