An essential tool for ecommerce, a payment gateway collects the transaction information a customer provides to compensate you for a purchase. It then encrypts the data and forwards it to the card issuer for approval. An authorization response is subsequently transmitted back to you and the customer is notified—typically within three seconds or less. Basically, it’s the equivalent of the card reading device you’ll find at brick and mortar retail stores. So, now that you have a clear idea of what they are, here’s how internet payment gateways work.
Transaction Settlement
In addition to gathering credit card information and conveying payment approvals, an internet payment gateway keeps track of all of the transactions it processes in order to issue a settling report at an interval you choose. Typically, this is done on a daily basis. The gateway takes all of the information it has gathered during the preceding 24 hours and transmits it to your bank in a single batch. This is better than forwarding transactions individually because most banks charge a fee each time a settling report is received. Depending upon the policies of your card processor, your bank should receive payment within 48 to 72 hours.
Reporting Functions
Gateways also keep track of all of the transactions they process to provide them to you in the form of a report you can review at will. You can do this on screen, download it to your hard drive for archival purposes, or print them to study at your leisure. You can also create customized reports around a number of different parameters such as time of day, card type or other key indicators you can employ to analyze your sales.
Shopping Cart Interaction
While shopping carts and payment gateways enter the transaction cycle at different points, it’s important they work together so payment information is accurately conveyed. Shopping carts provided with free website templates from the better platform suppliers like Shopify integrate seamlessly with a wide variety of payment gateways to ensure you have flexibility. Once a customer has chosen the items they’d like to purchase and the shopping cart has calculated the total price of their order, they are prompted to click to checkout, at which point they’re taken to the payment gateway to process their credit information.
Fraud Screening
One of the most important functions of the payment gateway is screening card information for potentially fraudulent transactions. Address verification, card code value (CCV) and card verification value (CVV) security measures are conducted by the gateway to ensure the account is being used on behalf of the person to whom it was issued. Payment gateways also store credit card information so you don’t have to do so on the server hosting your site. This eliminates the possibility of hackers gaining your customers’ data by infiltrating your hosting service.
Additional Considerations
Unless you’re an Amazon, a Zappos or one of the other large web-based retailers, you’ll access the payment system through a gateway. While there are fees associated with the service, the risk management functions and the accounting information provided tend to justify the expenditure.
Now that you know how internet payment gateways work, when you’re deciding which one to use, make sure it’s compatible with all known forms of payment. That way, your business can accept more than just Visa and MasterCard. While those are indeed the largest players in the business, people have other cards as well. The more ways you give your customers to pay, the more sales you can make.
