What Exactly Is a Payment Gateway? Example, Definition, and How It Works

A payment gateway is software used by businesses to process client credit card and debit card transactions.

The word covers both the online shopping cart payment processing portals as well as the actual card-reading hardware present in real retail establishments.

Payment Gateways and How They Work

The merchant-acquiring bank processes the transaction after receiving the customer’s information through the payment gateway, which is a crucial part of the electronic payment processing system.

Payment gateways adapt to customer demands and technological advancements. Chip-and-PIN credit card technologies have taken the place of signature requirements. Phone contactless payments are now becoming more and more common.

Whether a payment gateway is used for online or in-store transactions will affect its architecture. While in-store gateways employ POS terminals that link electronically through phone lines or the Internet, online gateways use APIs to connect websites to payment networks.

Payment Processor vs. Payment Gateway

A payment processor, a service that links the customer’s bank to the merchant account and enables the actual flow of money, is different from a payment gateway. These two processes may be thought of as the two halves of a transaction: a payment gateway gathers client information for payment, and a payment processor utilizes that information to get in touch with the customer’s bank and the merchant account to debit one account and credit the other.

A typical Payment Gateway

Merchants can choose their own payment gateway system or acquire access to payment gateway systems through relationships with merchant-acquiring banks. Along with their own merchant-acquiring bank services, large banks like Bank of America (BAC) and JPMorgan Chase (JPM) provide clients with sophisticated payment gateway systems. In the end, retailers have a number of payment gateway technologies to select from as long as they work with the merchant-acquiring bank being utilized to process payments.

Square (SQ), a current illustration of a payment gateway, places an emphasis on adaptable mobile payments for retail enterprises. Customers may quickly take payments at impromptu venues like conferences or farmer’s markets or through mobile shops like food trucks thanks to the company’s Square Reader technology.

A retailer may attach a tiny piece of hardware to their mobile phone using the Square Reader payment gateway technology, which enables customers to swipe their credit or debit cards for processing over the mobile phone’s electronic connection. The acquiring bank receives the payment information from the Square Reader and immediately processes it for the business.

New items are probably going to keep enhancing the adaptability and quickness of payment gateways. Even payment channels for cryptocurrencies have been created in recent years by blockchain businesses.

What is the price of a payment gateway?

The normal pricing structure for a payment gateway consists of an upfront setup fee, a predetermined monthly fee, and a minor transaction fee. Additionally, certain gateways can take a cut of each sale.

A White Label Payment Gateway: What Is It?

A white-label payment gateway is one whose branding may be altered to suit the tastes of its customers. As a result, companies may take payments from customers through third-party services without giving up ownership of their brand.

Can I create my own gateway for accepting payments?

Even while you could create a payment gateway from scratch, doing so would definitely cost too much money. According to Softjourn, developing a basic gateway to handle credit and debit card transactions might cost a quarter of a million dollars, not to mention the added hassles of dealing with foreign exchange, other currencies, and regulatory compliance.

Is Google Pay a gateway for payments?

Google Pay is a mobile payment system developed by Google that streamlines the process of making purchases. Users may make purchases without physically presenting their credit or debit cards thanks to encrypted data stored on their phones.

Is PayPal a payment processor or gateway?

PayPal offers services that are comparable to those of both a payment gateway and a payment processor, despite occasionally being referred to as a payment provider. Merchants may securely receive payments and redeem them to their bank accounts using PayPal’s merchant accounts, which have many characteristics with a processor.

Contact our specialists if you have any queries about how payment gateways operate.