Selling goods and services online requires that you gain knowledge of a whole new set of terminology. One of the most important of these concepts is the payment gateway. Exactly what is it, how does it differ from a payment processor, and how do you go about choosing the one that is best for your ecommerce business?

Payment processor vs payment gateway in the credit card processing realm.

When a customer enters their credit card payment details into your website at checkout, their transaction is either accepted or declined within a matter of seconds. However, you should not be fooled by this rapid turnaround time. The reality is, quite a bit goes on behind the scenes before funds are ultimately deposited into your merchant account. 

Six parties are involved in any credit card transaction: the customer, the merchant, two banks (one for the buyer and one for the seller), a payment processor, and a payment gateway. While the first four may be self-explanatory, these last two entities require more in-depth explanation.

Think of the payment processor as the intermediary that sends data back and forth between you (the merchant), your bank account, and your customer’s account. Generally, this entity provides you with the hardware and software necessary to process credit cards, including readers, printers, and barcode scanners. They also ensure that your payment system is up-to-date and upgraded as new security patches are rolled out. Payment processors are responsible for seeing that money is successfully moved from your customers’ accounts into yours. Of course, you can expect to pay a fee on each transaction you process, as well as additional charges including per-transaction fees, monthly minimum and statement fees, PCI compliance fees, and non-negotiable interchange fees. 

Payment gateways also help to facilitate seamless online credit card payments. They act as the secure connection between your website and your customer’s credit card account. Most businesses that conduct card-not-present online transactions (or have a subscription/recurring billing model) use these web applications. This is because payment gateways use a secure connection to encrypt the customer’s sensitive payment data and can authenticate and validate each transaction before it goes through, drastically reducing the likelihood of fraud and other data breaches.

Now that you understand payment processors and payment gateways, you probably want to figure out how to incorporate a payment gateway into your ecommerce business, if you haven’t done so already. Fortunately, doing so is easier than you may think.

1. Choose the right gateway type for your business.

There are two distinct kinds of payment gateways.

• Integrated gateway. This type allows you to accept your customer’s payment right on your website. They never need to be redirected away to complete the checkout process, an extra step that can lead to shopping cart abandonment. On the downside, incorporating this gateway requires that you have a fair amount of sophisticated technical knowledge, or are financially equipped to outsource the job to someone who does.
• Hosted payment gateway. Unlike its integrated counterpart, this type of application allows transactions to be completed on a payment processor’s website that is separate from your ecommerce website. Although this redirect can be potentially jarring for the customer, it means that your processing company is responsible for guaranteeing the security of the transaction, thus removing this significant burden of PCI compliance from your shoulders.

Deciding which gateway type is right for your business can only happen once you take stock of your budget, your technical knowledge, and your customers’ preferences.

2. Understand the costs ahead of time.

As you have probably guessed, integrating a payment gateway into your existing systems comes at a price. What you will pay involves a combination of several factors that include the following.

• Registration fees.
• Set-up fees.
• Monthly charges.
• Transaction fees.
• Processing fees.
• Chargeback and refund fees.
• Fund transfer charges.
• Early termination fees.

It is important to carefully review everything you will be required to pay before signing any agreements with a gateway vendor so that you are not surprised in the future.

3. Determine what additional features you want.

In addition to the basic gateway features, many vendors allow you to invest in valuable add-ons. These may include the following.

• Recurring billing for subscription-based payments. 
• PCI compliance programs. 
• Storage of customer payment information that saves shoppers from the aggravation of re-entering card details during future purchases.
• Notifications verifying transactions.
• A virtual terminal that mimics a physical credit card terminal. This is especially convenient for accepting customers’ mail phone orders.
• Tools that enable you to customize the API.
• The certified, point-to-point encryption and tokenization of sensitive payment information.
• Seamless integration with existing accounting or shopping cart software.

Again, it takes a thorough knowledge of your business and its current and future needs before you can discern which of these tools you should add to your basic payment gateway configuration.

4. Choose a shopping platform site.

Some of the most popular on the market today include Shopify, WooCommerce, and Magento. Each of these competing platforms has its own set of developer instructions that you should carefully follow to integrate to your website.

When you set up your store for ecommerce sales, you open the door to new opportunities: more customers, the ability to expand your product offerings, and even the potential for international sales. However, none of these intoxicating possibilities can happen until you find the most effective way for your new customers to securely pay for what you are selling on your website. 

Finding the right payment processing provider and gateway are two of the most important steps you can take to ensure the security and success of your burgeoning ecommerce business. However, before you sign on any dotted lines, make sure that you have a firm grasp of your business’s goals, your customer base, and even your future marketing strategies. With these details firmly in hand, you can find and incorporate a payment gateway that protects your business, safeguards your customers’ sensitive information, and facilitates fast and secure transactions every time.