What is Gateway Processing?

Shopping is pretty easy, right? Find the thing you want, add it to your cart (whether virtual or actual), give someone your money (or some form of payment info), and you’re done. For businesses that accept credit cards and need to accept payments, this process involves several behind-the-scenes steps to ensure a seamless transaction. Yes, from the customer perspective, commerce—especially e-commerce—is simple. It’s a breeze to navigate.

What most shoppers don’t realize (until they decide to open, say, a jewelry boutique) is just how much has to happen behind the scenes to create that seamless, professional customer experience that inspires loyalty from a target market with more options than they know what to do with.

The Merchant's Perspective on Merchant Accounts

When you start looking at the landscape of retail from the other side, though—the merchant’s side—things get a little more complicated. So, let’s break it down. The elements in play are as follows:

• Your merchant bank account (the kind of bank account required for a merchant to accept credit/debit payments). A business bank account is used for everyday expenditures and receives funds deposited after transactions are processed through a merchant account.
• The customer’s bank account
• The acquiring bank (the bank that processes credit card transactions on behalf of the merchant)
• A payment processor (a third-party company responsible for getting payment from the customer account into your account)
• A processing gateway (which acts as a mediator between transactions made in your store/on your website and your payment processor)

Whew. Got all that?

For a refresher on how all these things work together, read What Is ‘Interchange‘ And How Does It Apply To My Business Processing? This post will delve more deeply into the role of the processing gateway in merchant transactions.

The Role of Payment Processing, Processors, and Gateways

So, it seems pretty logical that the bank receiving funds and the bank providing funds will be involved in the transaction. But why do payment processors and processing gateways need to be involved? Understanding the differences between a payment gateway vs a payment processor is crucial for managing transactions effectively, and it's also important to consider the payment gateway cost, which can include setup fees, monthly fees, and transaction fees.

Payment Processors: The Delivery Guys

Think of it this way: If you order a food delivery to your house, you’re paying for the food itself, but you also pay for the service of having it delivered. The delivery fee and/or tip you add to the price of the food plus tax—that’s what the delivery guy gets out of identifying your order, picking it up, and getting it from the restaurant to you in one piece.

In financial transactions, payment processors are the delivery and short-term loan guys, and they might take 30-90 days to track down the money to process electronic payments. They pick up the right amount of money from the customer’s bank and transfer it to the merchant account. And they get paid a fee (like the delivery tip) for providing their payment processing services.

Processing Gateways: Ensuring Data Security

This is where the processing gateway comes in to ensure the security of payment data being transmitted between the customer’s bank and the merchant’s bank. The information being transmitted is pretty sensitive. It’s account numbers, names, security questions. Nobody wants those things falling into the wrong hands.

The payment gateway sends encrypted payment data for verification to ensure security, facilitating the overall transaction authorization and communication of its status.

So, in order to protect the security of all parties involved in the transaction, the payment gateway encrypts the data and keeps it safe from prying eyes until it gets from Point A to Point B.

‍

The Importance of Data Security

This data security is considered so important that any online merchant whose negligence resulted in a data breach could be charged up to $500,000 per incident and lose the right to accept credit cards. Yikes! So, that processing gateway plays a pretty crucial role in keeping a business healthy and profitable by ensuring the security of credit card payments.

When Do You Need an Additional Payment Gateway?

Fortunately, the majority of accounts don’t need an additional gateway (and the SwipeSum platform can help you determine if you do need an additional gateway). But if you’re using a merchant account that doesn’t have its own payment gateway, or you just want an extra layer of security and certainty when it comes to the encryption and protection of customer data, many companies (SwipeSum can help guide you here!) go past the standard of PCI Compliance with additional safeguards for customers and merchants.

A couple of good standalone payment options are SagePay and PayPoint. Authorize.net is the largest gateway globally, and it functions as both a payment gateway and a virtual terminal.

Finding the Right Solution for Your Business's Payment Data

But it’s really just about finding what works for you. For fledgling business owners looking to move into the big leagues, learning the rules is the best place to start. Once the needs of the business are clearly defined, all it takes to find the right payment service provider is a little bit of shopping.

Want More Info?

Want more info about online payments and payment gateways? Figuring out the best processing structure for your business? Send us a message or talk to your local SwipeSum Consultant today!

‍