Imagine you running a brick-and-mortar store and a customer steps into your office to choose and buy a product. But they don’t have cash in hand and would like to instead pay with a debit or credit card. To accept the customer’s payment, you will require a point of sale (POS) terminal or payment gateway to obtain payment information by mobile device or card. If you cannot accept their card for any reason whatsoever, you might lose them as a customer today and forever to the competing store next door. And you don’t want that to happen, right?
What is a payment gateway?
A payment gateway transfers the payment information of a customer to the bank account of the seller, ensuring the customer has sufficient funds to make a payment. It is important not to confuse a payment gateway with a payment processor. While a payment processor transfers transaction data and handles the informational exchange between the seller and the customer. On the other hand, a payment gateway is a technology that sellers utilize to accept digital payments, transmitting the payment information of the customer to the seller so that the seller gets paid.
How does a payment gateway work?
A payment gateway acts as the front-end technology in the overall payment processing system. It is used to send payment information of the bank to the seller’s acquiring bank. Some of the popular examples of payment gateways include PayPal, Stripe, Square, WebPays, and Apple Pay.
Let us gain insights into the steps involved in the process involved with payment gateways. Firstly, payment information is submitted by the customer. This may include debit/credit card information or PayPal credentials. The payment gateway then authenticates the received payment information to check if the issuing bank has sufficient funds to cover the transaction.
Thereafter, encrypted payment information is sent by the payment gateway to prepare for transaction processing. The transaction is then approved and processed by the card scheme which is followed by the transmission of information by the payment gateway to the seller for completing the transaction. Lastly, payment information is sent from the customer’s issuing bank account to the bank account of the seller so that the seller gets paid.
We at TheFinRate hope that this information on what is a payment gateway and how a payment gateway works is useful to you.