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A payment gateway is the authorization method for online transactions. Payment gateways are a part of the eCommerce setup, and part of what you need to accept credit cards online. Keep reading for more on payment gateways and different online payments.
What Is a Payment Gateway?
A customer comes to your business, either in the real world by showing up at your storefront, or online, by arriving at your website. He or she uses a shopping cart to assemble items that s/he wishes to purchase and approaches the checkout. At the checkout, the cost of the items, plus any additional charges (tax, shipping, handling) is calculated, and the customer offers some form of payment.
If the payment form is a credit card, the merchant submits the transaction through a Payment Gateway on the customer's behalf. This is the online alternative to a Point of Sale (POS) terminal.
The Payment Gateway passes the secure transaction on through another secure connection to the bank with which the merchant has a Merchant Account (see the article "Merchant Accounts" for more information), from which it is submitted to the Credit Card Network - a credit card management group. The Credit Card Network directs the request to the bank that issued the customer's credit card.
The transaction is approved or denied by the credit card issuing ban and returned to the Credit Card Network, which relays the decision the to bank holding the Merchant Account, which returns it to the Payment Gateway, where the results are stored and passed along to the customer and merchant. This generally is all accomplished in three seconds or less.
The customer is now free to take his or her merchandise, but more is happening in the meantime:
Differences Between Online Payment Systems
The Payment Gateway works hand in hand with a Merchant Account, but this functionality (allowing customers to pay online using a credit card) can also be achieved using Google Checkout™ or PayPal™, for example, which perform functions similar to merchant accounts but have their own processing system, rather than employing a standard Payment Gateway. For a Payment Gateway like Authorize.net, a Merchant Account is required.
Questions You Should Ask
Here are some things you consider as you set up your eCommerce site:
Concerning fees, you should check for recurring costs (monthly or yearly fees), set-up costs (one-time fees), add-on costs (features that are not a standard part of the initial package), and transaction fees (the amount you pay each time a request is processed).
Payment Gateway solutions you may wish to consider include:
(note that this is different than the all-in-one PayPal™ solutions that do not use a separate Internet merchant account)
There are many others that you can find online. It is impossible to compare pricing here, because Authorize.net and First Data Global Gateway require you to contact them for that information, so you will have to do cost comparisons yourself.
Related Article: Accept Credit Cards Online >>