Payment Gateway Services: What They Are & Why You Need Them

Are you moving your business online? Or perhaps you’re launching a new online business? Whatever your reasons for embracing ecommerce, there’s no better time than now to be an online entrepreneur. From buying groceries to attending a doctor’s appointment, post-pandemic consumers are turning online in record numbers to obtain needed goods and services.

After building your website and selecting an ecommerce platform, you will need payment gateway services to accept money from online buyers. What are payment gateways and how do they work? In this post, SeamlessChex will discuss what payment gateways are, explain why you need them, and offer tips to help you take full advantage of the technology.

What is a Payment Gateway?

An online payment gateway is a software solution that ensures secure and legitimate financial transactions over the internet. The technology captures the customer’s payment information, encrypts sensitive financial details, transmits the anonymized data to the electronic payments system, and declines or approves transactions to finalize a sale.

If you’re having a hard time understanding the technology, you can think of payment gateway services as the point-of-sale (POS) terminal in a brick-and-mortar store. Just like how POS terminals examine the card’s chip or magnetic stripe to authenticate a transaction, gateways analyze financial data to verify bank account information and authorize payments.

Payment Gateways vs. Payment Processors

Many people use payment gateways and payment processors interchangeably. You’re probably guilty of doing this too! Although the two work together, a payment gateway is different from a payment processor. A payment gateway service is a secure technology that captures and transfers financial data to banks and the credit card network through a payment processor.

A payment processor is an intermediary company that acts as a middleman between a merchant’s gateway and the online payments system. The gateway forwards secure payment data to the processor. The processor runs the information through relevant banks and credit card companies, then informs the gateway to approve or decline the transaction.

How Do Online Payment Gateways Work?

Although it seems like a quick and simple procedure, many complex processes take place behind the scenes to help you accept online payments. While it’s not necessary to know every detail, it’s important to learn how payment gateway services work so you can improve your understanding of critical business operations.

Here is an up-close look at how payment gateways transfer money from an online sale to a business’s merchant account:

1. Upon submitting an order, the customer enters their financial details on your payment page
2. The merchant’s website sends the transaction details to their payment gateway
3. The payment gateway encrypts/tokenizes the data, then forwards it securely to the payment processor
4. The payment processor routes the transaction information to the customer’s issuing bank and credit card company
5. After verifying payment information and checking sufficient credit/debit balance, the issuing bank and the credit card association send an approved/denied response back to the processor
6. The processor forwards the response to the payment gateway service
7. The online payment gateway receives the response and transfers it to the merchant and customer. If payment is approved, the gateway will authorize the transaction.
8. When the transaction is authorized, the processor requests the customer’s issuing bank to transfer the funds to the merchant’s acquirer
9. The issuing bank transfers the payment to the merchant’s acquiring bank/institution
10. The acquirer deposits the money into the business’s merchant account

Is your head spinning from all this information? We told you it was complicated. Do you know what’s fascinating? Payment gateway services perform all the steps above in less than two seconds! Now let’s move on to discuss why you need this complex payment technology.

Why Do You Need a Payment Gateway?

If you plan to operate an online business, how do you expect to get paid? If you’re thinking of money orders and checks in the mail, you won’t get very far. More than 75% of Americans prefer to pay for transactions with digital payment methods. Accepting online payments is essential for running a competitive business in today’s digital economy.

Online payments offer speed and convenience, but they do have their downsides. Payment fraud is 81% more likely to occur with online transactions than in-person payments. Enabling fraudulent transactions not only damages customer trust but can also bankrupt your business. And here is where payment gateway services become necessary for business success.

When you process in-person transactions, your POS terminal verifies payment legitimacy. How can you determine if a digital buyer is using their own money to make an online payment? Online payment gateways compare given financial information with cardholder data in the banking system to authenticate electronic payments and prevent fraudulent transactions.

How to Choose the Right Payment Gateway

So far, you should have learned that payment gateways are not only crucial for online transactions but can also support business longevity. Now that you know payment gateway services are vital for online businesses, it’s time to choose the best one for your ecommerce website. From the zillions of options out there, how can you pick the best gateway for your needs?

Here’s what you should look for when selecting a payment gateway for your online business:

Provides Multiple Payment Options

Most gateways offer limited types of payments. Some only process credit and debit card payments and do not include alternative payment methods. Almost 30% of Americans don’t have a credit card, so providing multiple payment options can increase your customer base. With SeamlessChex payment gateway services, you can get credit card, ACH, and eCheck processing to expand your business reach.

Has Top-Notch Payment Security

While online payment gateway providers boast of their security features, cyberattacks and payment fraud are hitting record highs. To find the safest payment gateway, look for a service that employs multiple layers of security. Choose a solution that has PCI DSS compliant platforms, verifies bank account ownership, and provides fraud-prevention technologies to secure your payments system.

Offers Affordable Rates

Processing online payments can be costly for merchants. Some payment gateway services can charge you up to 4% of the total transaction value for accepting an online credit card payment. If you want to improve your profit margins, partner with a gateway provider that has low-cost fees. SeamlessChex will provide you with a free cost savings analysis and are able to show savings off your current rates 99% of the time. In addition to credit card processing, Seamless Chex provides eCheck and ACH payment solutions which costs up to 90% less than cards.

How to Take Full Advantage of Payment Gateway Services

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Payment gateways are one component of online payments. You also need a merchant account and payment processor to accept online transactions. While you can get each of these services separately and integrate them into your ecommerce website, managing multiple providers and platforms is not only a hassle but can also slow down your payment operations.

So how can you take full advantage of payment gateways? Get an all-in-one payment gateway service. An all-in-one solution like SeamlessMerchant combines an online payment gateway, payment processor, and merchant account services into a single system to boost operational efficiency and lower your total cost of platform ownership.

Sign up for SeamlessMerchant

Ecommerce is the modern-day gold rush. Processing online payments can make your business accessible to more consumers, helping you reap great fortunes in a multi-trillion dollar ecommerce industry. The right payment gateway service can help you generate more revenue and reduce the risk of financial loss. Sign up for the SeamlessMerchant all-in-one payment solution to process secure and low-cost online transactions.