A Beginner’s Guide to Payment Gateways

If you are a small business wanting to collect credit and debit card payments from your customers, a payment gateway will ensure your transactions are processed safely, securely and quickly.

Let’s take a look at what an online payment gateway is, how it works, why you need one and how to choose which online payment gateway service is right for your business.

What is a payment gateway?

A payment gateway is the service that authorises credit card and debit card payments for online and offline businesses.

Sensitive information, such as credit card numbers, need to be protected from fraudulent parties. The online gateway itself is simply a secure online link between the merchant and the customer’s bank.

Sensitive information is encrypted so it can be passed between customer, merchant and payment processor securely. Even if you are taking payments by post, phone or fax, you still need a payment gateway.

How does a payment gateway work?

The online payment gateway carries out a series of tasks when a customer orders a product or service from a merchant. The process works in much the same way as a physical point of sale terminal in a shop or restaurant:

  1. A customer makes an order and enters their card details
  2. If the order is made online, these details are encrypted and sent to the merchant’s web server
  3. The merchant forwards the transaction details to their payment gateway, which are then sent to the merchant’s bank, and onto the card association (VISA or MasterCard)
  4. The card issuing bank then receives the authorisation request and carries out a number of checks before sending a response code to the payment gateway
  5. The gateway forwards the response onto the website where it is interpreted and relayed to the merchant and the cardholder – and this all takes place in about 2-3 seconds!
  6. The merchant can fulfil the order and the money from the sale is deposited into their account.

What is a merchant account?

To take customer payments online you need an online payment gateway as well as a merchant account. The merchant account is where the funds are held before they are deposited in your account. The job of the payment gateway is simply to approve or decline the transaction.

Hosted or non-hosted payment gateway?

  • A hosted online payment gateway redirects customers away from your website to a securely hosted page where the payment can be made. The customer then returns to the website where their order will be confirmed.
  • A non-hosted online payment gateway allows customers to enter their payment details without having to leave the website they are on. A website will typically have to meet certain technical requirements and have an SSL certificate in place to process payments in this way.

Do online payment gateways process international payments?

Online payment gateways vary and its worth checking if the solution you choose allows such payments. If the gateway does accept international payments there could be additional fees. Our service can process card payments for all UK acquirers, across all card types, for all worldwide currencies.

If your business isn’t taking online payments, there has never been a better time to start. Advancements in technology mean payments are more accessible and better integrated for smaller businesses than ever before.

Get in touch

If you’re interested in a Payment Gateway solution, or would like to set up a Direct Debit for regular or one-off payments, speak to London & Zurich today. We will talk you through your options and help you understand every aspect of this cost-effective payment option.

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