A Beginner's Guide to Payment Gateway Services and How They Work

Learn the essentials of payment gateway services with our guide. Explore how these crucial tools work, simplify transactions, and empower your business!

In simple terms, payment gateway services are a necessary step in each and every card-based transaction. Payment gateways help merchants accept credit and debit card payments. That’s true for online and in-person transactions.

In a more strategic sense, payment gateways play a critical role in keeping sensitive payment data safe. They take advantage of security measures like encryption and tokenization to protect transactional details. 

Payment gateways only handle part of the larger transaction, however. The same is true for both an ecommerce internet payment gateway and a gateway used in a brick-and-mortar store. A payment processor is also needed. When considering the entire process, a point-of-sale (POS) system, acquiring bank, and issuing bank are needed as well.

Let’s take a closer look at payment gateway services. Among other topics, we’ll more fully explain their role in online and in-person transactions. We’ll also review the criteria that you can use to find the best payment gateway service provider for your business.

Payment Gateway Services’ Role in Card-Based Transactions

One of the easiest ways to distinguish payment gateways from other parts of payment processing is the lack of money handling. Payment gateways are instead focused on securely and accurately sharing data.

Payment gateways encrypt sensitive personal and financial information from card-based payment methods. That way, it can be passed between the merchant’s bank and the customer’s bank without undue risk. This process also makes the exchange of information between the merchant and the customer themselves more secure.

The Payment Gateway Process Explained

Payment gateway services capture the card payment information entered into either:

The checkout or payment page of an online store

An in-store point-of-sale (POS) system

For online transactions, the data is first encrypted before it’s moved anywhere else. This helps merchants maintain alignment with relevant security standards and protect customers.

The payment gateway captures these transaction details, encrypts them, then passes them along to the payment processor.  The information then passes through the card issuing bank, merchant bank, and processor. During this time, the availability of funds and other specifics are determined.

The payment gateway helps merchants, customers, and their banks reach the point where funds are actually exchanged. This is where the payment processor steps in. The processor facilitates the movement of funds into the merchant account, helping to complete the transaction. 

Investopedia shares an easy way to distinguish between the payment processor and payment gateway service:

The gateway then communicates the approval or rejection of the transaction to the merchant and client. Finally, the rest of the transaction is completed (if applicable).

As complex as this process is, it’s generally completed in just a few seconds. It can take a few days for the funds involved to officially make their way into the merchant’s bank account. 

However, the approval process ensures the merchant will receive the money almost instantaneously. That allows the customer to leave with their purchase. Or, for online purchases, for the shipping process to begin as soon as the transaction ends.

How Do Businesses Get a Payment Gateway Service in Place?

Acquiring banks (which accept payments for the merchant) can and do provide payment gateways to their customers. Payment service providers, which are independent of banks, also offer gateways.

There’s not a universal right choice or wrong choice between these two options. In some cases, a business may find it’s perfectly served by the payment gateway offered by its acquiring bank. In others, a company may want to work with an independent provider due to the perks and policies it offers in its gateway.

Let’s take a closer look at how to find the best gateway payment service for your business.

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Tips for Selecting the Right Payment Gateway for Your Needs

Choosing the best payment gateway involves several considerations before the final decision. Security, fees, and features are all very important. However, there’s something else you need to consider first.

Compatibility is the top concern when it comes to payment gateways. Unless you’re starting a business from scratch, you’ll already have accounts and technology in place. Your payment gateway needs to interact with those existing assets for it to provide value.

One of the easiest ways to determine compatibility is to look for a list. Check if your existing payment software provider maintains a listing of compatible gateways. 

From there, you’ll want to review applicable options in areas like fees, relevant features, and effectiveness in terms of security. The best payment gateway service for your business won’t be too expensive. Nor will they lack the key functionality your business needs, like working with recurring payments. 

Effective encryption and security measures are, of course, the backbone of any successful payment gateway. Once you’re sure a gateway is compatible with your existing payments systems, you should review its track record in terms of security and safety.

Get Unbiased Expert Assistance When Selecting a Payment Gateway Service

Finding the right gateway for your business can be an especially challenging process. This common and vital tool in business payments is highly technical. A variety of factors influence which payment gateway is best for each individual business.

Having a wide variety of options makes it possible to find a gateway that’s truly a great fit. However, that variety also makes it much more difficult to narrow down the list. That’s especially true for business owners and decision-makers without a deep background in payment processing.

Swipesum offers provider-agnostic (i.e. fully independent) consulting services for businesses just like yours. Our experienced and knowledgeable payments specialists deeply understand the current state of gateways. 

With their deep industry expertise, they can work through the many options much more efficiently. The end result is a list of targeted recommendations that takes all of your needs into account. They’ll take compatibility, cost, effectiveness, security, terms and conditions, features, and much more into account.

Count on Swipesum for your payment gateway service needs!

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Michael Seaman

Michael Seaman

Michael Seaman is the co-founder and CEO of Swipesum. A veteran of the payments industry and former employee at one of the largest payments companies, Michael, along with his brother Stephen, has led Swipesum since its inception in 2016. Swipesum is committed to providing innovative payment solutions and exceptional service to its diverse clientele. In his free time, Michael enjoys traveling with his wife Kelsey and their three children, pole vaulting, and engaging in typical Midwestern dad activities.

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