A payment gateway is a critical part of the credit card processing ecosystem. Think of a payment gateway like a physical cash register or point of sale (POS) system. Traditionally, if a customer purchases an item in a brick-and-mortar store, he or she swipes the credit card or the merchant manually enters the payment information before completing the transaction.
Obviously, if the customer is purchasing from your online store, they won’t have access to a physical POS system. Yet, you still need to process the sale and confirm that the transaction is authorized, all while protecting the consumer’s financial information. Enter the payment gateway.
When a customer buys an item on your online store, their credit or debit card is processed at checkout. Once the credit card information is captured, it’s then sent over the gateway, forwarding the information to the acquiring bank (i.e., merchant bank) and then to the issuing credit card company.
The credit card company then transfers messages, such as authorization or denial codes, back to the merchant, letting the merchant know if the requested amount is available on the customer’s credit or debit card. Although payment gateways provide standard encryption security measures such as tokenization, many payment gateways also offer additional security features such as fraud protection. With extra security layers, these gateways can proactively identify suspicious activity earlier in the payment process, protecting both you and your merchants from financial losses.
Only ecommerce merchants need a payment gateway. Brick-and-mortar merchants do not. However, if you’re a traditional merchant with a storefront and you want to add an online store, or if you want to integrate your sales with an inventory system, then you’ll need to add a payment gateway to your “to-do” list.
Why you may need access to one.
Today, we sell and buy product and services in ways we couldn’t imagine just a few years ago. In fact, according to a 2018 Federal Reserve Payments Study, in 2016 and 2017 the use of credit cards, non-prepaid debit cards, and prepaid debit cards increased by 11.3 billion, reaching 123.5 billion payments and more than $6.48 trillion in value. Out of these payments, debit cards made up 66.9% of card usage in 2017 whereas credit cards made up 55.6% of the total value of card payments. This same study indicated that ATM cash withdrawals and check writing are on the decline, at 2.8% and 4.8% in 2017, respectively.
It’s hard to comprehend payments in the billions and values in the trillions, especially as it relates to your company. But what is the impact of these statistics on your small to mid-sized business?
This data shows that credit and debit card usage is continuing to thrive, especially now that we have multiple options to purchase goods and services online. To allow your customers to shop where and when they want, you’ll definitely need access to a payment gateway.
Payment gateway vs. payment processors.
Payment gateways and payment processors work hand-in-hand. If we think of the payment gateway as a virtual POS system, the payment processor communicates the payment information to the issuing bank, acting as an intermediary.
Payment processors are not always banks but can often be third-party providers. The payment processor sends the credit or debit card information to the issuing bank, notifying the issuing bank that a pending transaction needs attention.
To transfer such sensitive information, payment processors must follow several security measures, including confirming that the payment information is correct, encrypting the information, and making sure all transmissions are PCI-compliant. For example, if a credit card number is entered incorrectly or if a card has been flagged for potential fraud, a consumer’s method of payment may never reach the issuing bank, resulting in a denied transaction.
Payment processors may work with multiple payment gateways, consolidating communication between issuing banks and creating a more standardized way of communicating with payment processors. A payment processor can include physical hardware and software or can be software-based, with no equipment.
Traditionally, payment processors and payment gateways operated separately, each performing their designated tasks. However, with the flexibility of consumer purchasing increasing at a rapid clip, many payment processors are now integrated with payment gateways, giving merchants an all-in-one solution.
The benefits of payment gateways.
Operating an online store with a payment gateway creates numerous benefits. For example, payment gateways work 24/7/365, never taking a day off or calling in sick. The flexibility of accepting online payments at any time of the day, seven days a week, vastly expands your reach, increasing the number of customers and sales.
Not only can you reach more customers seven days a week, but your geographic reach increases as well. Since you’re offering goods or services through an online store, people from all over the world can ultimately find you with a few Google searches. Having a payment gateway that can process international transactions dramatically contributes to your company’s visibility.
Payment gateways can be bundled with your online shopping cart. Through the shopping cart, your customer can pick and choose what items he or she wants. Then, once that buyer is ready to check out, the payment gateway quickly processes the transaction, giving your customer faster and more secure transaction processing, without the required presence of a human employee.
Utilizing the latest in industry-standard security, payment gateways are safe, secure ways to transact sales, protecting your customers and your business from hackers and fraudulent transactions. By offering secure processing, you’re delivering peace of mind, and improving your customers’ experience.
Finally, payment gateways provide the ultimate flexibility for your customer. Today, shoppers want to shop on their schedule, whether it’s on a Sunday morning or at 2 a.m. on a Wednesday. You can expand your customer base exponentially by offering the flexibility of an always-on payment gateway.
Know what to look for when hiring a vendor.
If you offer an online store (or are thinking about offering one), you’ll definitely need a payment gateway. When searching for the right gateway for your business, be sure to ask some of the following questions:
- What types of payments does the gateway accept? Is it truly universal?
- What type of security features does the gateway have? Is it PCI-compliant?
- Does the gateway work seamlessly with mobile payments?
- How much does the payment gateway cost? Are there set-up fees? Monthly fees? Per transaction fees? What is the chargeback process?
- Does the payment gateway offer a reporting feature, giving you access to detailed reports or real-time transactions?
- Is the payment gateway compatible with your other systems, such as your existing invoicing or financial data management platform?
- If you have an international reach, does the payment gateway support foreign currency transactions?
- Does the gateway offer any additional capabilities, such as built-in invoicing?
At North American Bancard, we can help guide you through the setup of your payment processing for your online store. We make it easy to get the technology you need to adapt to consumer behaviors by accepting payments in the modern world, providing you with the latest payment solutions, competitive pricing, seamless integration and an unparalleled commitment to personal service. We’ll help you tailor your payment processing system to your specific business, giving you peace of mind. To set up a consultation, contact us here or give us a call at 877.840.1952.