Bankcard Processors: Payment Gateways: Everything you need to know

What is a payment gateway?

A payment gateway creates a secure connection between a merchant’s e-commerce site and the payment processor. It encrypts the data that’s passed with every card transaction, verifies its authenticity, and ensures it’s sent securely. Payment gateways are typically the last stop for payments before they are routed to a payment processor.

Payment gateway vs payment processor: what’s the difference?

The difference between a payment processor and a payment gateway lies in the fact that one—payment the processor—is the service provider facilitating the transaction, while the other—the payment gateway—is the communication channel responsible for securely transmitting the payment data to the payment processor and credit card networks. Another critical difference is that for purchases made at a physical location, the POS terminal supplied by the payment processor is all that’s needed to verify the authenticity of a card, while in card-not-present transactions (like those made online), the payment gateway will authenticate the card before securely sending its details to the payment processor. Naturally, the riskier nature of card-not-present transactions makes security an utmost priority when verifying and transmitting card details. That said, credit card transactions are still one of the most secure B2B payment methods.

Should payment processing companies have proprietary payment gateways?

Short answer: yes.

Payment processors should consider bundling all the services a merchant needs to accept payments, including equipment and support for setting up a merchant account. In some cases, the payment processor will also have their own proprietary gateway. The value in this is that the processor can control the entire transaction flow—they’ll facilitate payment acceptance, securely send payment data to card networks and banks, fund the merchant, etc.—rather than bringing in another third party.‎

Long answer: still yes, but here’s more context.

Merchants rely on third parties to help with their payment processing needs. Commonly outsourced components include shopping cart plugins, customer portals, and of course, payment gateways—some payment service providers even outsource the process of tokenizing transactions to ensure PCI compliance.

The problem with this lies in its impact on the overall customer experience. Customers are at the heart of payments, and payment processors are feeling pressure to create more seamless transaction flows.

When payment information is passed between multiple vendors—many of whom are not privy to the merchant’s business needs or have not built relationships with the merchant—the transaction flow feels fractured and lackluster. The merchant loses a significant amount of control, and the payment processor is unable to oversee the entire customer experience. Unfortunately, few payment processors supply a holistic suite of merchant services—proprietary payment gateway included. Those that do ultimately perform payment facilitation in-house can ensure a more seamless payment experience for customers and greater back-office efficiencies for merchants.

Payment processors that operate as gateways can control the entire transaction flow without experiencing downtime by having to depend on customer service, onboarding, or any other myriad third parties. Outsourcing degrades the customer experience, and there lies the value of developing and controlling every facet of a transaction.

What are examples of a payment gateway?

Popular payment gateways include: