A payment gateway is an e-commerce application service provider that authorizes payments between a merchant and the customer, typically for e-businesses and online retailers. It is the equivalent of a physical point of sale terminal located in most retail outlets. Payment gateways encrypt sensitive information, such as credit card numbers, to ensure that information passes securely between the customer and the merchant.
How Does a Payment Gateway Work?
A payment gateway is a service that approves credit card and other types of electronic payments for e-commerce transactions. It acts as an intermediary between your online store and the bank that issued the customer’s credit card. When a customer places an order on your website, the payment gateway:
- Authorizes the credit card for the purchase amount
- Charges the customer’s credit card
- Deposits the funds into your merchant account
- Notifies you of the successful transaction
To use a payment gateway, you must have a merchant account with a bank. A payment gateway is not the same as a merchant account, although most payment gateway providers also offer merchant accounts.
What Are the Benefits of Using a Payment Gateway?
- Increased Sales: A payment gateway can help you increase sales by making it easier for customers to pay for your products and services online.
- Improved Customer Service: A payment gateway can help you improve customer service by providing a streamlined process for payments and refunds.
- Reduced Fraud: A payment gateway can help you reduce fraud by encrypting sensitive information and providing fraud detection tools.
- Scalability: A payment gateway can help you scale your business by allowing you to process more payments as your business grows.
- Global Reach: A payment gateway can help you expand your business into new markets by allowing you to accept payments in multiple currencies.
- Flexibility: A payment gateway can provide you with the flexibility to accept a variety of payment types, such as credit cards, debit cards, and electronic checks.
- Enhanced Security: A payment gateway can help you protect your customers’ information with encryption and fraud detection tools.
- Lower Costs: A payment gateway can help you lower your costs by reducing the need for paper processing and manual entry of data.
- Improved Cash Flow: A payment gateway can help you improve your cash flow by providing real-time reporting of transactions.
- Increased Efficiency: A payment gateway can help you increase your efficiency by automating the payments process.
