Understanding Payment Gateways

Payment gateways are a vital component of online credit card processing – in fact, so essential, that the entire payment-processing scheme could never work without payment gateways. As a merchant, business owner, or entrepreneur, it’s crucial that you understand the basic principles of payment gateways: what they are, what they do, how they do it, and how your business benefits from them.

Even if you don’t conduct business online or deal with payment gateways typically, it’s important that you comprehend the fundamental components of payment gateways, because business is headed online, whether the market likes it or not. People love the convenience of shopping online, and if you have ever shopped on an Internet retail shop, you undoubtedly enjoy the convenience of sitting in a chair and clicking through purchases. At any rate, this is where business, commerce, and all other forms of human interaction are headed.

What Are Payment Gateways?

Payment gateways are essentially the means by which your online consumer’s sensitive personal and financial information – specifically usually credit card numbers and authorization codes – are transmitted to and from the acquiring bank in the transactions. They feature a variety of encryption options, but rest assured that the vast majority of payment gateways today – especially those supported by Vision Payment Solutions – are as secure as possible.

How Do Payment Gateways Work?

Because payment gateways are fundamentally tunnels, they transmit the data through a specific, ordered process, although some details may vary across different models:

  1. Your patron submits their order, along with credit card information for payment.
  2. If the order is submitted from a website, the patron’s browser encrypts the data, to be sent to the merchant’s server – known as SSL (Secure Socket Layer).
  3. Merchants then forward this information through their payment gateways to their acquiring bank (payment processor), which in turn forwards it to the card company (VISA, American Express, etc.).
  4. The Cardholders’ issuing banks reply with an authorization code to the payment processor, which then relays data through payment gateways.
  5. The payment gateways route the approval codes back to the merchant’s site, so that both the merchant and consumer know the transaction is successful.
  6. Finally, the merchant submits their transactions in a batch to their bank for settlement with the processor. The bank then deposits the funds into the merchant’s account.

How Do Businesses Benefit from Payment Gateways?

It’s not so much a question of how payment gateways benefit a business, but rather understanding that, without payment gateways, you cannot accept your patrons’ card payments, and therefore cannot conduct business online if you don’t have payment gateways to facilitate the transfer of information.