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How Does an Internet Payment Gateway Work?

In order to make online sales, businesses need a payment gateway. Gateways are e-commerce tools that essentially function as the online equivalent of a sales clerk at a register. When customers enter their information and agree to a charge, a payment gateway completes the credit card processing automatically, authorizing the transaction and accepting the funds. From there, the transaction continues much like they do in person. Payment gateways are connected directly to merchant accounts and deliver the money from the sale to them.

The Transaction Process

After a card holder authorizes a charge, the internet payment gateway proceeds to contact the card issuer for authorization. Once both ends have accepted the payment, the gateway securely finishes the transaction. Payment gateways provide businesses with a protected link between themselves, their customers, and the credit associations. Each transfer is heavily encrypted according to PCI Data Security Standards.

In addition to basic credit card processing, payment gateways assist in the settling and reporting of credit transactions. Internet payment gateways create batches of transactions every day and transfer the settled funds from merchant accounts to the owner’s bank account, with some services doing so automatically. Digital records and reports can typically be accessed from anywhere and printed for physical backup.

Other Benefits

Internet payment gateways save business owners a great deal of trouble setting up their own security protocols, verification methods, and settlements. There is much less room for human error, as the only person typically involved in credit card processing online is the one sending the payment information. As the business owner sees fit, payment gateways can be used as digital terminals to manually enter transactions for orders put in over the phone or through the mail.

Payment gateways are also particularly immune to certain liabilities. In addition to built-in fraud screening tools, credit card transactions processed through online gateways are stored on the gateway rather than the website of the business that uses it. Because the information is stored in a separate location, if the website of a business using an internet payment gateway is ever accessed unlawfully, there is little chance the perpetrators will find anything that business could be liable for.


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