A payment gateway is an interface between the banks (or financial institutions) of the shopper and the merchant. It facilitates the transfer of money from the shopper's account to the merchant's account.
The payment gateway is a software application. To draw an analogy, think of the credit card swipe machine at the checkout counter. Akin to the swipe machine, the payment gateway:
- processes a transaction securely
- verifies details such as identification and limits
- accepts or rejects the transaction.
Types of Payment Gateways
There are two primary types of payment gateways based on the location of the transaction processing code:
- Merchant Side API
In this type, the transaction processing code resides on the ecommerce merchant's server, and accesses the payment gateway by using an API (Application Programming Interface).
- A Secure Order Form
This is a more common implementation. It redirects customers to the website of the payment gateway provider. After the payment is processed, the customer is returned to the ecommerce merchant's website.
The primary issues to keep in mind when selecting a payment gateway are:
You need to ensure that the technology platform required for the payment gateway is compatible with your shopping cart's technology.
Detecting fraud is a moving target. Make sure to read up the latest about who is winning this perpetual battle.
There is some merit to the notion that payment gateways have become a commodity service. As a result your decision should certainly be influenced by the pricing.
- Simplicity vs. Customizability
Some payment gateway providers such as PayPal and Google Checkout are simple to implement, but do not permit a high degree of customization. Others are more complex, but can be customized to your needs.