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:

• The Settlement Process: The bank that issued the customer's credit card sends the funds to cover the transaction to the Credit Card Network, from which they are passed to the bank where the merchant has a bank account (which may or may not be the bank through which the merchant has a merchant account). The bank routs the funds to the merchant's bank account. This takes 2-4 business days.
• Repayment: The bank that issued the customer's credit card adds the transaction to any others and includes it in the customer's monthly statement. The customer repays the credit card issuing bank.

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:

• Is my account FDIC insured?
• Will my customers stay on my site during the transaction process?
• What are the rates?
• What are the fraud protection options and how much control do I have over them?
• What happens if there is a dispute between customer and merchant?
• What kind of user satisfaction ratings does the service receive?
• How professional will the service appear to my customers?
• Will my customers have all payment options they prefer?
• Will the checkout process be in keeping with my brand?
• Is there information going to other parties instead of to my database so that I will have a more difficult time using my data to enhance my business?
• What are the Payment Gateway Features?
• How reliable is this Payment Gateway?
• Are there any restrictions to customer location or additional fees for customers outside the US?

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:

• Authorize.net
• First Data Global Gateway (formerly LinkPoint)
• PayPal™ Payflow Gateway (formerly VeriSign Payflow Pro)

(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.