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What Is a Payment Gateway?

what is the payment gateway

By Ajeet Khurana. Ecommerce Expert

Ajeet Khurana is an author, educator, mentor, angel investor, and speaker for ecommerce and online business. As a lecturer at the University of Texas at Austin, he taught ecommerce back in 1993, when the term "ecommerce" had not yet been coined. Read more about his profile on Google+: Ajeet Khurana .

Question: What Is a Payment Gateway?

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.
  • Some payment gateways are programmed to compute tax and shipping costs too. All gateways have algorithms to detect fraud. Though payment gateways were designed primarily for ecommerce websites, many physical retailers find it convenient to use a payment gateway instead of a swipe machine.

    Types of Payment Gateways

    There are two primary types of payment gateways based on the location of the transaction processing code:
    1. Merchant Side API
  • 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.

  • Continue Reading Below

    How to Choose a Payment Gateway The primary issues to keep in mind when selecting a payment gateway are:
    • Compatibility

    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.

  • Often, you do not get to choose a payment gateway, as it comes bundled with your ecommerce hosting account.

    Category: Bank

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