How does a Payment Gateway Work?

A Payment Gateway acts as middleware, securely transferring cardholder data to a payment network. When shoppers make a purchase, transaction details are routed to a Payment Gateway, which is, in turn, informed by the Payment Processor whether the payment is authorized or declined. The Payment Gateway communicates the outcome to the business and customer. If approved, the funds from the cardholder’s issuing bank are deposited into the merchant’s bank account.

Types of Payment Gateways

There are a variety of payment gateways available to meet the diverse needs of businesses large and small. Some simply feature the ability to capture and transmit a credit card within a secure website form, while more robust omnichannel Payment Gateways, like PayJunction’s, accept payments presented any way via a cloud-connected platform.

The three most common types of payment gateways are:

Redirect: Customers are taken from your online form to another site, like PayPal, to enter the payment information needed to complete online purchase transactions.
Hosted: Hosted solutions are maintained by a gateway solutions provider, such as PayJunction, and all cardholder data is relocated and stored at a centrally-managed host within the provider’s secure data center.
Distributed or On-premise: All payment capture and transmission happens on the business’s servers. Upgrades are typically made via downloads and onsite installations.
Payment Gateway vs. Payment Processor
The Payment Gateway is the technology that captures payment details and securely transmits the data to the Payment Processor who is responsible for connecting with the card brand networks and moving the funds from approved transactions into the business’s merchant bank account.

However, the lines can be blurred depending on the provider. Some Payment Gateways are third-party companies (middleware providers) that just provide the ability to capture and transmit the data from an online form. Businesses typically pay gateway setup, monthly and per transaction fees to the Payment Gateway Provider. These fees are in addition to the rates and fees assessed by the Merchant Account Provider.

Some companies, like PayJunction, offer a combined Merchant Account and a Payment Gateway, giving you one point of contact for all of your payment acceptance needs. This simplifies vendor management and eliminates the need to connect and certify to multiple platforms. And finger-pointing is eliminated if problems arise. You’ll have just one point of contact to answer questions or diagnose and fix any issues. Better still, having one full-service provider eliminates the need to pay separate gateway fees to a middleman. Many all-in-one providers don’t charge extra for using their payment gateway since they are earning revenue by processing the transactions.

Benefits of a Payment Gateway

Omnichannel Payment Gateways, like PayJunction’s, provide secure multi-point connectivity across all points of payment: POS systems, online forms, e-commerce shopping carts, digital invoices, recurring card-on-file transactions and more. As a result, businesses don’t have to certify and maintain numerous interfaces to accept payments in-person, online or in apps. Plus, transaction management and reporting are simplified, thanks to a consolidated view of all payment activity. And staff training is simplified since employees typically only need to learn and access one system to view and manage payment activity.

Payment Gateway Features
The features of Payment Gateways vary so it’s recommended that you do your research to find which one best fits your industry segment, acceptance channels, payment methods and integration needs.

Industry Segment
Most Payment Gateways can be used by any business that needs to accept online payments. Some gateways have features built specifically for niche segments such as hospitality and lodging, healthcare or digital subscriptions.

Acceptance Channels
Here are the most common ways that Payment Gateways can be used to securely accept payments:

In-person: Use a cloud-connected customer-facing Smart Terminal to accept payments made via insert, swipe or tap of a card, phone or wearable device. 
Online: Add a “Pay Now,” “Buy Now,” or “Donate Now” button to your websites, emails, apps and digital statements/correspondence to direct customers to a secure Hosted Payment form — branded with your logo and colors — to enter payment details. 
E-commerce: Accept e-commerce payments connected to a choice of integrated shopping carts for a seamless checkout experience. These range from small cart plugins to full-featured e-commerce platforms aligned to meet business needs.
Remote billing and invoices: Email customers a request to pay an invoice from any browser-connected device where they can click a link to quickly and securely enter payment details. 
Recurring/subscription payments: Set customers up on payment plans and securely store their card or bank account details on file to automatically collect scheduled payments. 
Key-entry: Use a connected Smart Terminal or a Virtual Terminal to manually enter payment details from phone and mail-in orders.