Payment gateways are tech solutions employed by merchants to receive credit or debit card purchases made by customers. This term comprises physical devices that process cards as well as the Payment processing portals leveraged by stores online. That said, physical shops are now adopting other technologies like NFC and QR codes to process payments. 

KEY POINTS

• Payment gateways can be likened to consumer-recipient interfaces used for collecting payment info. 
• In physical shops, payment gateways include point of sale terminals used for accepting credit card info by smartphone or card. 
• In online shops, payment gateways refer to the checkout portal used for entering credit card info for such services—for example, PayPal. 
• Payment gateways aren’t the same as payment processors that collect customer info to authorize payments for the merchant. 
• Payment gateways are readily available when it comes to ensuring cryptocurrency payments. 

How does a Payment Gateway Work?

The payment gateway happens to be an integral part of the e-payment processing ecosystem. It’s the technology at the front end responsible for pushing customer info to the merchant’s bank where the transaction processing will take place. 

Payment gateways continue to undergo changes and improvements to adapt to new customer trends and technical abilities. Formerly, payment terminals accept credit cards, implementing the customer’s paper signatures and magnetic strips for processing. But it is different now because of the changes in chip techs. Now, a PIN is entered on the payment device in place of signatures. In addition, contactless technologies are also becoming rampant: a technology that allows customers to make payments with their smartphones instead of the typical credit cards. 

Gateway architectures differ slightly, based on if it’s an online payment portal or in-store gateway. Online payment gateways need APIs to enable the eCommerce site to interact with the concerned payment processing network. In contrast, in-store payment gateways use POS terminals that electronically link up the payment processing network using an internet connection or phone line. 

Payment Processor vs. Payment Gateway

A payment gateway is not a payment processor, a unique service that links the merchant account to the bank of the customer, facilitating the necessary transaction. Think of these two terms as the two aspects of such a transaction: payment gateways collect customer info for payment purposes, whereas a payment processor utilizes the available information to reach out to banks of the parties (customer and merchant), subtracting from one account and adding to the other. 

Definition

A payment gateway gets information from a customer card and gets it encrypted for future processing. 

A payment processor takes that information and authorizes a debit order on the customer’s bank or whoever the card provider is. 

Payment Gateway Example

Payment gateway systems are accessible to merchants via merchant acquiring bank partnerships. Else, they can choose any payment gateway system they like. Big banks like Bank of America as well as JPMorgan Chase have advanced payment gateway solutions they offer customers, coupled with their merchant acquiring bank services. Therefore, it is up to merchants to select any payment gateway, provided it will work with merchant acquiring bank employed for payment processing. 

An example of a good payment gateway is SQ (Square), which focuses on flexible mobile payment solutions for retailers. For example, square Reader tech lets customers seamlessly accept payments at various temporary locations like farmer’s markets or conventions or via roaming storefronts like food vans. 

Using the Square Reader’s payment gateway tech, a merchant can affix tiny hardware to their smartphone, allowing a customer to swipe their payment card via the mobile phone connection for processing. The Square Reader grabs the information and sends it to the merchant acquiring bank that processes the info momentarily for the merchant. 

It is a given that new technology will keep increasing the speed and versatility of payment gateways. Recently, new blockchain-based businesses have introduced various payment gateways for handling cryptos.