Understanding Payment Gateways

A payment gateway is much like a physical point-of-sale terminal in an offline store, but comes in the form of a 'virtual terminal.' Instead of your customer sliding their card through a machine, they will be entering their credit card or checking account information in a form on a website. The payment gateway is the 'middle man' between your shopping cart, the customers credit card issuer, your merchant account, and all the financial networks in between. Many merchant accounts include the payment gateway, which can be leased or purchased, while others require you to find a separate payment gateway.

Once your customer has used your shopping cart to make their product selections, they are directed to the checkout process. Once they have filled out all the billing and shipping information, the data is encrypted and sent to the payment gateway through a SSL (Secure Socket Layer) connection. The payment gateway validates the information, such as ensuring that there is enough available credit for the purchase and that the card is valid, then sends the information on to your merchant account for processing.

When choosing a payment gateway to use with your shopping cart, you should check to make sure that the payment gateway authenticates the credit card or electronic check, sends and receives transactions over the Internet using an SSL connection, offers administrative and technical support, and ensures complete privacy and security of all sensitive data. You should also ensure that the payment gateway uses an AVS, or Address Verification System, to help prevent fraudulent transactions.

There are fees associated with a payment gateway. Usually, there are set up fees and monthly fees. The payment gateway provider will also usually charge you a percentage of your sales. Make sure that you know exactly what all the fees are, and what they are for, before choosing a payment gateway system. Percentages can vary enormously between a fraction of a percent and 10 or more percent, often depending on the monthly volume you will put through, so it pays to shop around.

If your business has not reached the stage where it is ready to take on the expenses associated with payment gateways and merchant accounts, you also have the option of choosing a third party merchant account, such as Paypal, 2CheckOut, Ibill, or Authorize.net. These third party merchant accounts do not require you to have a merchant account or a payment gateway provider.

It is also important to make sure that the payment gateway that you want to use is compatible with both your shopping cart and your merchant account. Check your shopping cart documentation and your merchant account provider to be sure. For simplicity, try to choose a merchant account that includes the payment gateway.