6.1 Payment GatewaysPayment Gateways
eCommerce Payment Gateways
A payment gateway is a software application set up as a part of your website ecommerce platform to enable customers and other businesses to complete transactions from your website. Once the transaction information is submitted by the customer on your website through the payment gateway, the payment gateway quickly and seamlessly authorizes the payment and places it in your merchant account. Payment gateways are often fully integrated into your ecommerce platform as a plug-in or extension, thereby making the customer UX simple and easy to use.
The most popular payment gateway that many are familiar with is PayPal, though there are many other comparable payment gateway services in the market.
Payment gateway software performs the following services on your behalf:
Authorize Payments. Payment gateways serve a similar function to a physical point of sale terminal that many retail stores have.
Process Payments. Payment gateways are able to communicate with all parties involved in an online transaction, including the customer, the customer’s bank, the merchant’s account bank, and the merchant. When the order is submitted on your site, both you and your customer will receive a notification once the payment is confirmed often in only a few seconds.
Securely Deliver Payments. Payment gateways also include security measures to ensure that both you and your customer’s bank information are never compromised. Your payment gateway securely encrypts your customer’s card information once it is entered onto the site and ensures that this sensitive information remains encrypted for the entirety of the payment process. Many payment gateways also offer fraud protection on behalf of the merchant, so that you are protected from costly fraudulent purchases made on your site (illegitimate orders or chargebacks).
The advantages of payment gateways—other than handling online transactions—include (1) the effortless convenience of being able to accept payments on a 24/7 basis through your website, (2) the real-time authorization of credit and debit cards, (3) the secure flow of payment information through the banking institutions, and (4) the ability to rapidly confirm and notify receipt of a payment on behalf of both you—the seller—and the customer.
eCommerce Payment Gateway Versus Merchant Account
Merchant accounts and payment gateways are different ecommerce tools, but both are essential for ecommerce and are often bundled together. A merchant account is simply a bank account that allows you to accept payments from credit and debit cards. Merchant accounts temporarily hold the funds of the transaction within the merchant account (normally for a few days) until they are permanently transferred to your business’s bank account. A merchant account serves the same function in a brick-and-mortar store as it does online.
Payment gateways are what allow credit and debit card payments to take place securely and rapidly over the Internet. Both a merchant account and a payment gateway are needed to make online payments. Many services offer basic merchant accounts that can be bundled with a payment gateway for simplicity, including PayPal, 2Checkout, Stripe, and BrainTree.