Open and shut, defining a credit card processing gateway
Credit card processing gateways can be used for processing card payments online, instore, or both, by merchants of any size, operating in any type of industry. Payment gateway services provide an easy integration and setup option, access to a wide selection of processing platforms, integration with a variety of software, and the ability to assist merchants who want to remove card data from their business network for more secure payments.
By definition, a credit card gateway is a payment software solution that is hosted by a third party. Its purpose is to connect a merchant to their acquiring bank’s processing platform in order to facilitate payment processing and allow a merchant to accept credit and debit card payments. A gateway can be thought of as an interface between the merchant and the payment processor.
What else do you need to know about credit card gateways, and what should you look for when choosing from among the many payment providers available? In this article, we’ll explain some of the important features of gateways and take a look at some of the factors to consider when selecting one for your business.
Card reader equipment
Merchants often ask if they will need additional equipment to use a gateway service. The answer depends on whether the merchant will be using a standalone device or an integrated solution, and whether they will be processing card present transactions in a brick and mortar location, or card not present transactions via ecommerce or mail order/telephone order.
Different processing scenarios require different technology, and in most instances, merchants have the option to purchase or rent hardware and/or software. A trusted payments partner is a good resource to consult about card equipment options you may need to use a payments gateway at your business.
Merchants don’t have to use a gateway to process credit card payments. They can also use a direct interface to a payment processor or a payment application. In the case of a direct interface solution, the POS systems send credit card transactions directly to the payment processor, eliminating the need for a third party gateway solution.
Merchants enjoy different advantages from a gateway than from a direct processing interface. While gateways are appealing for their all-in-one packages which offer simplicity and ease of implementation, a direct processing solution offers the added benefits of built-in value adds as well as features that can be customized based on a business’s needs.
Whether a merchant chooses a gateway or a direct solution really depends on their individual business needs and the requirements of the systems they are already using– or plan to use in the future. Also, not every gateway or direct integration is compatible with every payment processor. If you are already working with a payment processor you like, it’s important to find out if the solution you decide to use (whether gateway or direct) is compatible with that processor.
Along with the advantages mentioned above, both gateways and direct processing solutions also have disadvantages associated with them. Because a gateway places an additional point of use and contact between a merchant and their processor, additional features and functions may incur additional and ongoing fees, for both the service and for its implementation. These fees could include a setup fee, ongoing monthly fees, and per transaction fees.
This isn’t to say that using a direct processing solution is less expensive. This type of solution requires development time and costs that can be prohibitive for some merchants. For many, the simplicity of a gateway is worth paying a little extra for than dealing with the costs and effort to integrate a direct solution.
Payment security continues to be an important—and critical—consideration when selecting a payment solution. When looking at credit card gateways, you should always look for one that has been validated as PCI compliant by either Visa and/or MasterCard.
Additional features can increase the security of a credit card gateway such as tokenization, which allows for secure post-authorization services such as recurring payments, adding tips to transactions, delayed shipping, and card-not-present voids and returns; end-to-end (E2E) encryption, which protects cardholder data from the moment it is entered throughout the entire transaction; and a semi-integrated “out of scope” implementation.
With PCI compliance being a critical task for merchants of all types, merchants often ask if using a gateway simplifies PCI compliance. The answer is, yes, a gateway can relieve some PCI requirements for a merchant, depending on how it is used: whether it is standalone or integrated with software, and if the gateway offers (and the merchant uses) the security solutions just mentioned– tokenization, E2E encryption, and a semi-integrated “out of scope” implementation.
Like many direct processing solutions, payment gateways can provide transaction reporting capabilities, as well as gift card and loyalty features (either as an internal offering or as part of their processor certifications). Some gateways can also provide fraud tools, recurring billing functionality, a customer database, and other business building and supportive features.
Features to look for
When evaluating card processing gateways, merchants should take into consideration several features. These include compatibility with their existing business software such as accounting, inventory, and scheduling programs. Compatibility with a majority of processing platforms is also important because it gives the merchant flexibility to switch processors if they desire.
Something else to look for are specialized functions and features that can help with a merchant’s PCI compliance efforts, and with running their business. These include existing integrations or an easy to use API, access to support, security features like tokenization, E2E encryption, and other business features like gift and loyalty programs, customer database capabilities, etc.
Making your decision
When it comes to accepting credit cards, many merchants think all they need to do is open a merchant account and they are ready to go. There is a bit more involved, and a lot more options consider. The more that you know about your choices in gateways and direct interface processing solutions, and whether you need an online payment solution, an instore solution, or one that serves both, the better you will be able to select the best solution for your business.