A payment gateway is an electronic service that authorizes credit card or direct payments processing for e-businesses, online retailers, bricks and clicks or traditional brick and mortar businesses. They are sometimes referred to as “shops”, “storefronts” or simply “checkouts”. A successful payment request will result in a MOCC (Merchant Order Confirmation) which the merchant must later confirm or decline.
Payment gateways are offered by financial institutions, such as banks and credit unions, along with payment processors like PayPal and WorldPay. Merchants provide payment information directly to the gateway service, then they receive back an encrypted keys that form a secure connection between them.
Financial institutions and payment processors like PayPal and WorldPay will enable the merchant to send and receive credit card and direct payment data on a dedicated application-to-application connection, this makes it very secure; however, the merchant is responsible for keeping track of their accounts payable and accounts receivable.
The Payment gateway supports both recurring billing as well as digital receipts. Each gateway is different, depending on the bank or processor it has agreements with. For example, PayPal supports Digital receipts by email while Worldpay supports digital receipts via SMS to mobile devices.
The 5 core components of payment gateways are:
As you can see in the diagram above, Merchant is an entity that requests a quote, a service or a product from the Vendor. The Merchant then requests payment information from the Customer and passes it through to the Payment Gateway. Once this data is processed by the Payment Gateway it returns an approval code to the Merchant which must be later confirmed.
If your business will be selling both online and offline, you should consider implementing two separate payment gateways. To maintain consistency on the surface of the website, you should use one form for collecting credit card information and another form on the merchant site to collect customer’s physical address, which is needed for shipping purposes.
The first step would be to create a new website that can be linked with your current business website. This website will only be used for credit card transactions. This way you can have a unique website for your online sales and offline sales, but they both lead back to the same business site.
In addition, ensure that the products offered have the same prices on each website so as not to confuse customers with different product names or pricing on each page of your website.
There are two main types of payment gateways: online and offline. It is important to understand the difference between them before you select a payment gateway for your business.
An offline payment system is the most common payment method for prepaid cards, non-reloadable credit cards and non reloadable debit cards. The consumer enters their card information into an online form on your website or into your ecommerce application. You then submit this data to a payment gateway and they store the card information on their servers, and your merchant account is billed at some later date. A good example of this would be if you were selling prepaid phone cards or gift certificates on your website.
The fees involved with payment gateways vary based on the pricing model your merchant account provider has established for you, however there are several fees associated with any type of payment gateway service.
The following list outlines some common fees involved in using a payment gateway: