A credit card payment gateway enables merchants to accept credit card payments from a customer by connecting the payment processor (the service debiting money from the card) with a merchant account provider (the service providing the merchant with their payment system to receive the money). Gateways are payment services that process credit card transactions online from an e-commerce site or at a store through a credit card terminal.
Payment gateways allow a merchant to accept credit card payments (in person or online) by transferring money between the merchant account and the payment processor via a credit card terminal or electronic means such as a virtual terminal. A virtual terminal, sometimes called a web POS or cloud POS, is a software application that enables merchants to take payments from any device (such as a PC, smartphone, or tablet) by allowing the device to act as a point-of-sale terminal. Virtual terminals are often used by businesses that don’t have an online store but need to accept remote payments over the phone, by mail, or by fax.
Payment gateways act as conduits that connect merchant and purchaser accounts; they pass credit card transaction information from the merchant to the relevant bank of the customer through the relevant credit card network by using one of the following mechanisms:
• Credit card POS terminals in physical stores (physical payment gateway).
• Credit card payment services used on websites and smartphone applications (virtual payment gateway).
The transaction flow for a payment is the same whether a merchant uses a physical or virtual payment gateway. Smartphone and online payments, however, use digital capture files to contain credit card information rather than a receipt produced by a credit card reader.
When a buyer makes a credit card payment gateway to the merchant the payment gateway transfers the transaction information to the acquiring bank, determines which credit card network issued the buyer’s card (Visa, MasterCard and so on) and routes the transaction information to the relevant payment switch after which the payment switch sends a request to the bank that issued the buyer’s credit card (the issuing bank) and sends the transaction information to the correct credit card network for processing. The issuing bank checks the legitimacy of the transaction and, if it is approved, confirms the buyer has sufficient funds to complete the purchase.
The issuing bank then sends this information back to the payment gateway and the merchants bank to complete the process. The process essentially connects buyers, merchants and the banks and credit card processors they are each using.