What Are Payment Gateways and How Does It Work

The Transaction Flow

A payment gateway is the first technology checkpoint used by merchants to accept debit or credit purchases from customers. This term includes physical card-reading devices, and also payment processing portals found in e-commerce stores.

How do Payment Gateways work?

The payment gateway is the front-end technology, which helps send the customer information to the merchant acquiring bank to proceed with the transaction.

The evolution of technology has changed the way people use payment gateways. In the past, terminals required signatures from customers to accept credit cards using magnetic strips. With the development of chip technologies, the personal identification number (PIN) transfers directly to payment gateways without requiring signatures from customers. Nowadays, customers use their phones as a payment method for the availability of contactless purchases. 

Besides, there are differences between in-store and online payment gateways. By utilizing a POS terminal, in-store payment gateways connect to the payment processing network electronically via phone or internet connection. On the other hand, online payment gateways use application programming interfaces (APIs), which help the website communicate with the underlying payment processing network.

Why do you need to care about Payment Gateways?

When starting a business, three key things you will need to set up to receive funds are a payment gateway, payment processing, and a merchant account. While you could go through three different providers for these services, many payment companies will consolidate these services for you.

It’s important to emphasize the difference between these functions; payment gateways accept payment details and connect payment networks, while a merchant account receives the funds. While sometimes used interchangeably, a gateway and a processor are not synonymous terms.

A payment processor analyzes and transmits transaction data, while the gateway actually authorizes the transfer. Some popular payment gateways that you may have heard of are PayPal, Stripe, or WorldPay. Many payment gateways offer basic security measures, while some don’t provide any seller protection at all.

How IPP secures your payments

It’s essential to protect yourself and your customers, and a secure payment gateway and payment processor can help prevent fraud on a case-by-case basis. Luckily, at IPP, we can provide 3D secure, virtual capabilities, recurring billing, third-party integration, 24/7 support, and batch processing to you with competitive pricing and the utmost security so that you and your customers can shop fraud-free.

We also give you a free payment processing analysis to figure out your payment gateway problems and save your money. For more information, give us a call, and one of our expert agents can provide you with a better understanding of gateways. In the meantime, keep up with the International Payments Processing blog as we provide you with the most current tips, resources, and products to help protect you against fraud and other factors that could jeopardize your business.