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What Is a Payment Gateway

If people want to accept payments by way of debit cards or credit cards, they need a payment gateway. People don’t always know what this technology is, but this article will examine the concept.

What Is a Payment Gateway?

A payment gateway is the means by which merchants accept credit and debit cards. The gateway includes the device that reads debit and credit cards in brick-and-mortar stores as well as the portals that process payments made in online stores. In recent days, brick-and-mortar stores have been accepting payments over the phone with QR codes and NFC technology.

How Do Payment Gateways Work?

When people make electronic payments in a store, they need to use technology that sends their debit or credit card information to the merchant’s bank. Then, the bank can process the transaction. In the beginning, payment gateways accepted payment by way of a magnetic strip. Then, they could accept payments with chip technology. Now, people’s phones allow them to make contactless purchases.

What Is an Example of a Payment Gateway?

Square is a payment gateway that provides retail businesses with flexible mobile payments. Retail stores receive a Square Reader, and they attach it to their mobile phones. Then, a customer can swipe a debit or a credit card so that the information can be sent to the merchant’s bank.

People Involved in the Payment Gateway

  • The Merchant

The merchant is the person selling products or services to the public.

  • The Cardholder

The customer who makes a purchase with a debit or credit card.

  • The Issuing Bank

The bank that has the customer’s credit card information or checking account attached to a debit card.

  • Acquiring Bank

The bank that has the merchant’s account.

How Does a Payment Gateway Work?

Step 1: The customer is on the merchant’s website. She starts the transaction by clicking the “buy now” button.

Step 2: The payment gateway encrypts the customer’s credit card information and sends it to the card scheme for processing.

Step 3: The card schemes need to approve the transaction before it can move forward. After this occurs, the payment gateway sends the information to the website so that it can complete the transaction.

Step 4: The payment gateway sends the information to the customer’s bank so that the purchase price can be debited from the customer’s account and deposited into the merchant’s account.

All of these steps are completed in just a few seconds, and as time goes by, this technology keeps getting even faster.

The Difference between a Payment Gateway and a Payment Processor.

People often use “payment gateway,” “payment processor” and “payment service provider” interchangeably, but they are three very different things. The payment processor moves money from the customer’s bank to the merchant’s bank, but it needs a payment gateway to make communication between these two technologies possible and for authorization of the transaction.

An example of a payment service provider is Western Union, and it has a payment processor, a payment gateway and a merchant account that allows all types of transactions to take place. If someone would like to make bill payments online, they can do so on the Western Union website.

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