The Role of Payment Gateways in Credit Card Processing

With digital payments expected to exceed $2,000.00bn in 2023, it’s clear the online payment landscape plays a significant role in the American economy. The world of eCommerce has created a range of opportunities for new and existing businesses to reach customers across the globe. However, while many companies have reached new heights due to online stores, selling products via the Internet requires additional payment infrastructure.

How Does an Online Payment Gateway Work?

A payment gateway is one of the most critical tools for processing online payments. It provides a valuable platform for transmitting credit card details from a customer to a credit card processor and other relevant parties. Modern gateways offer a secure, seamless online shopping experience to millions of web users across the country. 

However, payment gateways cost money, leaving many business owners wondering: What exactly is a gateway’s role in credit card processing? This guide explores payment gateways and everything you need to know about their role in the online payment journey. Let’s get started!

Payment Gateway Roles

Many merchants make the mistake of assuming payment gateways process payments. In reality, payment gateways are intermediaries between merchants and payment processors — it’s still the payment processors that handle the backend of settling payments. To avoid any confusion, let’s explore a breakdown of a payment gateway’s role in the payment process:

Payment Ease

Payment gateways make it much easier for customers to purchase products from an online store. By creating a sleek, easy-to-use interface for customers to input their card data, payment gateways improve the overall shopping experience for website visitors.

Modern payment gateways have a unique focus on ease of use, with many allowing customers to save payment details for future transactions. Creating a seamless shopping experience helps merchants reduce abandoned carts. 

Payment gateways aren’t a one-size-fits-all solution — different gateways have different approaches to accepting payments. For example, some payment gateways integrate directly with a merchant’s website, allowing for on-site payments.

Others transport customers to a secure, third-party website to complete payments. The option most suitable to your business will depend on budget, website constraints, and the type of user experience your business wants to offer its customers.

Encryption and Communication

While payment ease is critical, it’s also critical to keep payments secure for merchants and customers. Modern payment gateways encrypt payment information and transmit it to payment processors using secure communication channels, reducing exposure to hackers. The entire encryption and communication process happens in seconds, ensuring no hiccups when a customer initiates a virtual payment on a merchant’s website.

It’s critical to partner with a payment gateway provider that values security. Modern payment gateways should use SSL/TLS certificates to provide secure digital communication to users. Likewise, a payment gateway provider must follow PCI DSS compliance. This is another security framework that helps reduce exposure to data leaks and other liability issues. 

Authentication

Chargebacks are a significant issue for many businesses with online stores. As online transactions don’t require a physical card for payment, they are much more prone to credit card fraud. Research suggests global eCommerce fraud losses totaled $41 billion in 2022 alone, making credit card scams a significant hurdle for digital entrepreneurs.

Payment gateways help reduce exposure to fraud by providing “authentication” tools to customers and merchants. When a customer inputs payment details, many payment gateways will verify the information with an external source to ensure the cardholder is the individual making a purchase.

This external verification may involve checking a cardholder’s registered address, CVV code, or other critical details. Likewise, it may include two-factor authentication, such as sending a verification code to the cardholder’s registered phone number or email.

>> Related: What is a Virtual Merchant?

Verdict: Compare Payment Gateways to Find a Secure, Reliable Payment Solution

With research suggesting 70% of US consumers prefer digital payments, your business must leverage the benefits of a payment gateway to offer customers seamless online transactions.

Fortunately, there are now countless payment gateways to choose from, many of which are compatible with third-party payment processors and merchant account providers. Likewise, some payment gateway companies also offer in-house payment processing services, making all payment services accessible in a single location.

Comparing multiple credit card processors before signing any agreements is the best way to access a high-performing gateway at an affordable price point. Some payment gateway providers offer enterprise pricing to high-volume merchants, so the higher your business’s revenue, the easier it will be to negotiate a lower rate.

Regardless of price, always prioritize payment gateways focusing on ease of use, secure communication, and robust authentication processes.

Compare Gateways >>

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