How an Online Payment Gateway Works

How an Online Payment Gateway Works

If you run an ecommerce business, you need an online payment gateway. It’s the only viable way to manage high-volume transactions from a diverse customer base in a way that promotes trust and authority in your business. But if you’re just starting out, or if you’re unhappy with your current payment solutions, you may be wondering how an online payment gateway works and why it’s so important to choose the right one.

What Is an Online Payment Gateway?

An online payment gateway is a web-based solution for accepting credit card payments without a physical credit card. It uses an encrypted digital network to transfer credit card payments quickly and securely.

Think of it like an invisible tunnel that connects your customers’ banks to your merchant account. The transaction passes through the gateway and is protected from third-party interception (e.g. hackers, spoofers, and other cyberthreats). It’s a sort of middleman that allows the two end points (the payment processor and the customer’s bank) to communicate.

Online Payment Gateway vs Traditional Payment Gateway

An online payment gateway uses the internet to transmit credit card transactions remotely—usually when a customer manually enters their payment card information on a website. It’s ideally suited for ecommerce businesses and for any organisation that accepts credit card transactions and mobile payments online.

A traditional payment gateway transmits credit card payments via on-site payment terminals, like credit card readers and point-of-sale systems. It may be connected to the internet (this is common with POS systems), or it may be privately connected to the processing bank via a telephone line, but the primary goal is to accept payments in person using the physical credit or debit card.

An online payment gateway shouldn’t be confused with a virtual terminal. A virtual credit card terminal (sometimes referred to as a cloud POS) is a piece of software—sometimes connected to a portable card reader or sometimes entirely virtual—that acts as an all-in-one point of sale system on the go. This allows you to transact business by manually entering a customer’s information or allowing them to insert their card. The virtual terminal will have its own internal gateway.

Square is a popular example of a virtual terminal; it uses its own gateway and merchant ID to process payments on your behalf; the gateway isn’t your own, and it recognises Square (and not you) as the merchant. If you need virtual terminal services (for example, if your business handles Mail Order/Telephone Order transactions), look for a payment gateway provider with a built-in virtual terminal.

Online Payment Gateway Services vs Merchant Services Provider

An online payment gateway solution is separate from the merchant services provider (also known as a payment processor or payment service provider).

The merchant services provider is responsible for accepting or declining transactions, interfacing with your customers’ financial institutions, consolidating your funds, transferring funds to your bank account, and offering additional services such as:

  • Processing transactions from alternative payment methods
  • Storing and encrypting your customers’ data
  • Fraud detection
  • Chargeback mitigation
  • Helping your store to remain PCI-compliant
  • Transaction statistics, records, and analytics

In short, your merchant services provider manages the entire process to ensure that all transactions complete successfully and that you get paid.

Often, you can bundle your merchant services and payment gateway under a single plan, thus allowing for more streamlined credit card processing. Unicorn Group makes it easy to bundle these and other essential payment services.

How Much Does an Online Payment Gateway Cost?

The cost for payment gateway technologies can vary significantly depending on several factors, including:

  • The gateway provider’s fee structure
  • The credit-worthiness of your business
  • Your transaction volume (and your ratio of foreign vs. domestic transaction activity)
  • Whether or not you bundle your gateway with payment processing services

In most cases, the gateway provider will assess your business and approve you for a specific rate. You’ll be charged a transaction fee in most cases (usually a small percentage per transaction), and you may also have to pay a monthly account fee.

When you receive a customised pricing quote, always read the fine print and know what you’re paying, as some gateway providers will impose additional or hidden fees such as setup fees, PCI-compliance fees, and batch fees.

Is an Online Payment Gateway Safe?

Online payment gateways are required to maintain PCI compliance, the leading industry standard for web security. This is critically important because nearly one-third of all cyberattacks are targeted at ecommerce stores.

Online payment gateways are considered to be among the safest online payment processing solutions. All data is encrypted prior to transfer and processed via SSL, a secure channel that’s designed to mitigate the risk of interception. The payment processor then analyses the transaction to ensure that it’s legitimate.

At Unicorn Group, we’ve implemented some of the industry’s most stringent security standards to protect merchants and their customers. All of our payment solutions—from our gateways to our payment processing tools—are PCI-compliant and secured via SHA-256 SSL encryption, all at no extra charge. In addition, our merchants are equipped with fraud-scrubbing technology that works around the clock to identify and stop cyberthreats in their tracks.

When shopping around for merchant solutions, these are the standards you should always demand.

What’s the Best Online Payment Gateway Provider?

To choose the best payment provider for you, look for options that offer the following features:

  • Transparent pricing with no hidden fees
  • The ability to accept a wide variety of credit cards, currencies, and other types of payment, especially if you process a lot of international transactions
  • A scalable solution that grows with your business
  • Easy payment gateway integration with your shopping cart platform or custom website build
  • Access to real-time transaction data
  • Chargeback and fraud prevention tools
  • Enhanced encryption and security features
  • Compatibility with all of your desktop and mobile devices
  • The ability to support subscription billing (if your business has the need for it)

Unicorn Group offers all of these features plus free integration assistance. Our comprehensive payments platform works with small, mid-sized, and massive online stores, and we offer customised payment solutions for every organisation. Our solution also works with all major shopping carts.

Do I Need an Online Payment Gateway?

Every serious business needs an online payment gateway. It’s the most secure, reputable, reliable, and affordable way to accept debit and credit card transactions. Your only other option is to work with a payment aggregator like PayPal or Square, which transmits and processes electronic payments on your behalf using its own merchant ID and gateway. These services are convenient, but they put you at a massive disadvantage for several reasons:

  • They’re extremely risky; if your business is hit with fraudulent transactions, the aggregator may freeze your account (and all funds therein) without warning.
  • They can actually cost more than using a dedicated payment gateway if you manage a lot of transactions.
  • They’re inconvenient for digital shoppers, who are required to complete the checkout process (at least in part) on a third-party site. One-click checkout is always the way to go for a quality online shopping experience.
  • Without a variety of payment options, you’ll lose customers.
  • They look less professional to customers and may negatively impact your reputation.
  • They can make excellent backup or secondary payment options but will prove detrimental as a primary payment option.

For any serious business, the answer is clear: dedicated payment gateway solutions are a must. Just make sure to choose the right one to meet your needs at an affordable price.