Payments Gateway is a payment software that processes credit card payments online through a website or in-person via the credit card payment terminal.
Generally, payment gateways serve to transfer a customer's payment data to the merchant’s bank account. During the transaction, the payment gateway captures the customer's data and ensures if the funds are available for a purchase, and then gets a merchant paid for goods or services.
Online, a payment gateway is cloud-based software that connects a customer to the merchant. In person, it’s the software built into a point-of-sale (POS) system or card reader that processes a transaction when the cardholder uses their card to make a payment.
How does a Payment Gateway Work?
Payment gateways include these key stakeholders:
Merchant: Any business or person that sells products or services.
Cardholder: A customer buying goods or services.
Issuing Bank: A financial institution that holds the customer’s bank account.
Credit Card Networks: Companies that manage cards, like Visa, Mastercard, American Express, etc.
Merchant's bank: A financial institution that issues merchant accounts.
Three Types of Payment Gateways
There are generally three main types of payment gateways:
Redirects: Payment gateways take a customer to the processor's payment page to manage, process, and complete transactions.
Payment processing through redirect gateways means less control for a merchant, and a second step for a customer.
Hosted Payment Gateway: A customer makes a purchase on your site or at your retail location, but the payment processing happens on the payment provider’s servers. Like in the case of redirected payment gateways, using such a gateway does not give you control over the user’s payment experience.
You’ll depend on the quality of the offsite gateway and its features.
Licensed payment gateway: The checkout and payments are made through your system. Finally, you can have more control over transaction processing, but this also involves more responsibility from your side.
Do You Really Need a Payment Gateway?
A payment gateway is a must-have for any online business that looking to accept credit card payments. This technology manages financial data and moves funds from customers to merchants.
Payment Gateway Providers
Nowadays, there are a lot of payment gateway providers on the market and they’re not created equal. So choosing a payment gateway provider always means you understand well what payment gateway infrastructure your business requires and what features are the most essential for you.
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