Support Services: Understanding the Role of Payment Gateways1 May, 2012 By: Curtis Kleinman Response
For many who own a business and sell online, a payment gateway is the lifeline of your business. Yet, payment gateways are somewhat of a mystery for most card-not-present business owners.
Who needs a payment gateway? Any business selling online or through a call center needs one. What is a payment gateway? A payment gateway connects the website and the bank that processes the credit card transaction. There is software behind the scenes that securely transfers credit card information from the online payment form to the payment processor. In simpler terms, the payment gateway acts as a bridge between the merchant’s shopping cart and the acquiring bank, which deposits the merchant’s earned money.
Merchants are able to pre-authorize, authorize, capture, reverse and refund transactions via a payment gateway. Gateways with real-time reporting are helpful to assist with quick response times and managing customer expectations and service levels.
A payment gateway offers your business certain features and functions including:
- Security and fraud. All payment gateways encrypt sensitive credit card information before they pass it along to the processing bank. This helps protect your customers’ credit card numbers from being stolen. Different payment gateways offer different levels of fraud protection.
- Recurring billing. Your chosen gateway solution should allow you to process multiple recurring and membership-type payments without passing or storing credit card information. Some gateways have unique features, such as the ability to differentiate between gift cards and pre-paid debit/credit cards. Thus, if your product accepts continuity-based payments, you’ll have a greater chance of subsequent payments being made by your customer.
- Virtual terminal. A virtual terminal, so called because of its similar function to brick-and-mortar terminals, is offered by every payment gateway company. Just as a retail merchant might key in a customer’s credit card information on a physical terminal, a merchant may purchase a virtual terminal to enter credit card information on the computer via a Web browser. Merchants and their call centers can go online and enter credit card information into an online virtual terminal. You can use any online browser when going to a website.
People often get the payment gateway confused with their merchant account. They are two distinct and different things, and both are absolutely required to sell online to consumers. A merchant account must be established with a banking institution. You must sign a document stating the rate you will pay for the cards you accept from your customers.
At the same time, payment gateways can help achieve easy PCI compliance. Some payment gateways conduct the entire transaction on their own servers while staying on your website the entire time. Since your technology isn’t involved in the transaction, PCI compliance validation is easier. This also limits the chance of the merchant experiencing fraudulent transactions.
Some payment gateways have what is called a hosted payment page. This will direct your purchaser away from your E-commerce website, where they’ll complete the payment on this hosted page. At this point, your customer will be redirected back to your website. Having your payment page hosted means the customer will spend some time away from your site, thus you won’t be able to keep the design of your website throughout the payment process. The good news is, since you are not taking confidential customer details on your site, you are less prone to experience fraud and other perils commonly associated with such an action.
Remember, though, not all payment gateways are the same. The most standard gateway used is Authorize.net, which is compatible with most shopping carts and is easy to work with. Authorize.net features competitive fees, rates and preconfigured “buy” buttons available for all online storefronts.
No matter what gateway you choose, be careful to make sure it’s compatible with your other software. Please be wary of lengthy contracts, which cannot be broken, large set-up fees and high transaction costs.