Merchant gateways, also known as payment gateways, are technology platforms that facilitate the processing of electronic payments made by customers to merchants. They act as a link between the customer’s payment method and the merchant’s bank account, securely processing and verifying the transaction in real-time.
Merchant gateways provide a seamless payment experience for customers, allowing them to securely pay for products and services online using various payment methods, including credit and debit cards, e-wallets, and bank transfers. They also allow merchants to receive payments quickly and efficiently, improving their cash flow and overall business operations.
In addition to processing payments, merchant gateways also offer other services, including fraud detection and prevention, recurring payments, currency conversion, and reporting and analytics. However, not all merchant gateways provide all of these services, so if any are important to the business it is essential to make sure they are offered.
Merchant gateways are an essential component of e-commerce and online payment processing, enabling businesses of all sizes to accept electronic payments securely and efficiently.
As technology continues to evolve, merchant gateways are expected to become even more advanced, providing merchants with greater functionality and flexibility to meet the changing needs of their customers.
How Does a Merchant Gateway Work?
A merchant gateway is a crucial part of the process that allows businesses to accept electronic payments from customers. To ensure a merchant gateway is set up and working efficiently, it is important to understand how they work.
The basic working principle of a merchant gateway involves four key players: the customer, the merchant, the issuing bank, and the acquiring bank. Here’s how it works:
- The process starts with the customer shopping on the business’s website or app. The customer begins the payment transaction by selecting the items they want to purchase and clicking on the “checkout” button on the merchant’s website or app.
- Once the customer clicks “checkout,” the merchant’s website or app starts encrypting the customer’s transaction information and sends it over to the merchant gateway. This data typically includes information about the customer, such as their name, address, and payment details.
- The merchant gateway then sends the transaction data to the acquiring (merchant’s) bank, which is responsible for processing the payment. The acquiring bank verifies that the customer’s payment details are correct and that they have sufficient funds to complete the transaction.
- If the acquiring bank approves the transaction, it sends the payment data to the customer’s bank, also known as the issuing bank. The issuing bank confirms with the acquiring bank whether there are sufficient funds in the customer’s account for the transaction.
- The customer’s bank either approves or declines the transaction based on the information it receives from the acquiring bank. If the transaction is approved, the customer’s bank sends an approval code to the acquiring bank, which then sends it to the merchant gateway.
- The merchant gateway receives the approval code from the acquiring bank and sends it to the merchant’s website or app. If the transaction is declined, the merchant gateway sends a declined code to the merchant.
- With the approval code, the merchant completes the transaction, and the customer’s payment is processed. The merchant’s website or app may then display a confirmation message to the customer.
- Finally, the acquiring bank settles the payment with the customer’s bank, and the funds are transferred to the merchant’s account, where the funds are typically held for a few days before being released to the business’s bank account.
In summary, a merchant gateway allows businesses to accept online payments by securely transmitting payment data between customers, issuing banks, acquiring banks, and merchants. It ensures that payments are authorized and settled quickly and efficiently, allowing businesses to focus on providing excellent products and services to their customers.
Is It Required to Have a Merchant Gateway?
If the business is running an e-commerce website or selling products and services online, having a merchant gateway is typically required.
A merchant gateway is a secure online system that allows the business to process credit card payments, debit card payments, and other electronic payments directly from their customers. Without one, a business won’t have the means to accept payment from customers.
If the business is running a brick-and-mortar business, they may not need a merchant gateway if they are only accepting cash or check payments. However, if the business wants to offer their customers the convenience of paying with credit or debit cards, they will need to set up a merchant gateway.
In other words, if accepting payment by credit and debit card is important, then it is required to have a merchant gateway. Using a merchant gateway is the only way to safely and securely accept credit and debit card payments.
Merchant Gateway vs Merchant Account
A merchant gateway and a merchant account are both important components of accepting payments in an online business, but they serve different functions.
A merchant gateway is a software or platform that allows businesses to securely process payments made through credit cards, debit cards, or other digital payment methods. It acts as the middleman between the customer’s payment information and the merchant’s bank account.
A merchant account is a type of bank account that allows businesses to accept payments via credit cards and debit cards. It’s essentially a line of credit extended to a business by a bank or financial institution that allows them to process payments through their merchant gateway.
The merchant account is linked to the merchant gateway and acts as a holding account for the funds received from customer payments before they are deposited into the business’s regular bank account.
So, while both a merchant gateway and a merchant account are essential for accepting credit and debit card payments, they are different from each other. They work together to make the payment process run smoothly for the customers and the business.
What to Look For in a Merchant Gateway
To ensure the best possible payment experience for customers and businesses alike, it is important to understand the needs of the business when it comes to accepting payments. When the needs are determined, the search can begin!
When choosing a merchant gateway to fit the business needs, there are several things to consider to ensure that it meets your business’s unique requirements.
Security
Security is paramount when it comes to online payment processing. Ensure that the merchant gateway selected is PCI DSS compliant, which means that it has met the security standards set by the Payment Card Industry Data Security Standard. Additionally, check if the merchant gateway uses end-to-end encryption to protect customer data.
Compatibility
The merchant gateway needs to be compatible with the business’s already existing e-commerce platform or website. Check if your gateway provider supports the e-commerce platform and payment options to avoid spending extra and unnecessary money.
Processing Fees
The payment processing fees charged by the merchant gateway provider should be transparent, and the business should understand all the associated costs, including setup fees, transaction fees, and chargeback fees.
Integration with Payment Processors
The merchant gateway should support integration with other payment providers to enable the business to accept payments from different sources, such as digital wallets and bank transfers.
Customer Support
A merchant gateway provider should offer excellent customer support. Ensure that the provider offers 24/7 support through multiple channels, such as phone, email, or live chat for quick help if something goes wrong.
User Experience
The business’s merchant gateway should provide a seamless payment experience to their customers. The payment process should be straightforward, and customers should be able to complete their transactions without encountering any errors.
Benefits of Using a Merchant Gateway
In addition to making it possible to accept payments online and by debit and credit card, there are several benefits that come along with using a merchant gateway as part of the payment process. These benefits include:
- Increased security for payments. Merchant gateways use encryption and other security measures to protect sensitive payment information, reducing the risk of fraud and unauthorized access
- Quick transaction processing. Transactions can be processed in real-time, reducing the time it takes to receive payments and improving cash flow
- Improved customer experience. With a merchant gateway, customers have to ability to pay online with their preferred payment method, making them happy
- Simplified bookkeeping and accounting. Merchant gateways can integrate with accounting software, streamlining the accounting and bookkeeping processes
- Lower administrative costs. With automated payment processing and streamlined accounting processes, businesses can reduce administrative costs and allocate resources more efficiently.
Choose Bankful for Your Merchant Gateways!
Bankful offers a merchant gateway for every business type. The gateway can easily be integrated into several different e-commerce platforms, accepts many different payment methods, and has fraud prevention tools!
Head over to the Bankful website to learn more.