What is a payment gateway & How can it help Your business?

Last Updated on September 15, 2023 by Ryleigh Stangness

What is a payment gateway?

Think of payment gateways as the bridge between a customer and a merchant's bank account, whether in-person or online.

For example, when the waitress punches in your bill and passes you the card reader to pay, the POS hardware is the payment gateway in this scenario.

To put it plainly, payment gateways are integrations you'll find on almost every website that accepts credit card payments. Odds are, you've used them many times before as a customer; and if you weren't previously aware you were using one that may be because sometimes, the only evidence you'll find of one is a tiny logo of the company providing the gateway service to the retailer in the corner of the webpage.

When you snag that dress in that online-only sale and type in your credit card payment details and cardholder data into the portal— you guessed it— that is also a payment gateway.

Read on to learn about your best payment gateway options.

Who needs a payment gateway?

Most business owners looking for a payment gateway are ecommerce merchants with online stores in need of some type of online payment integration. In your case, you may have certain software or shopping carts in mind and are trying to find a way to integrate credit card processing. So, if you already have a website and want to integrate payments, a payment gateway can be the way to go.

What is a payment gateway provider?

A payment gateway provider refers to the payment processor or platform that enables the payment gateway tool. Some common examples of payment gateway providers include PayPal, Stripe, and Shopify. Some platforms, like Shopify and PayPal, don't require a third-party payment provider, while others, like Stripe and Helcim, offer both payment gateway and payment processor services.

How do payment gateways work?

Short answer: Payment gateways allow businesses to accept payments by authorizing a transaction and transferring funds from the customer's account to the merchant account. The specifics will vary depending on whether you are accepting credit card payments or debit card payments and whether the cardholder is paying online or in person.

In-person payments

What you will need:

To process payments in person, you will need a card reader and a device to access the POS software, such as a computer or tablet.

How it works:

1. The merchant records the transaction through their POS system and pulls up the total on the card terminal.

2. The customer presents their debit or credit card or their phone for contactless payments such as Apple Pay.

3. The card terminal reads the chip or tokenized payment from the phone through Near Field Communication (NFC) technology and pulls cardholder data to send to the customer's issuing bank.

4. If the customer is paying with a credit card, the transaction will travel through the card brand networks and must be authorized by the issuing bank. If the customer is paying with a debit card, then the transaction will float through the Interac rails.

Note: Each transaction will qualify for different transaction fees depending on factors such as your payment processor's pricing model, the industry the business is in, the type of payment gateway being used (online or in-person) and the type of card the customer is paying with (high reward consumer cards qualify for higher interchange rates for example.)

5. The issuing bank authorizes or declines the transaction and sends the information through the respective network to the acquiring bank.

6. The acquiring bank sends the information back to the payment processor, which displays "approved" or "declined" on the card terminal.

Note: There are many reasons a transaction might be declined, including risk assessments for fraud. Learn more about deciphering decline codes here.

7. The merchant will settle their batches on the terminal, usually at the end of the day or week, essentially "cashing in" on those transactions for the day. Until now, the transactions were authorized, but the funds haven't yet been transferred. This information will be sent to the payment processor, who will capture those funds that have been authorized from the issuing bank and will be deposited into the acquiring bank and then sent to the merchant's bank account.

Online payments

What you will need:

To process online payments, you will need a payment gateway, a place for your customers to find you online, browse your products, and checkout.

How it works:

1. Your customers find you, whether through your website or a payment gateway option, such as a payment link listed on your Google listing or social media bio.
2. After browsing your stunning products and loading up their cart, your customer is ready to checkout and pay. The checkout button or link will take them to the payment portal.
3. Whether this portal is built into your website, is an added integration, or is hosted completely offsite in another window, this is where your customers will review their total and enter their credit card information (or ACH bank account details, which is more common for subscription or recurring payments.)

Note: Ensuring brand consistency between your product catalog, website, and checkout page, even something as easy as a logo or brand colors, will go a long way toward reducing abandonned carts. These details help to create a sense of professionalism and comfort when it comes to your customer sharing their bank account details and seeing their transaction through to the end.

4. The payment gateway tool will function the same way as a credit card reader and pass on the credit card or ACH payment details through the respective network.

P.S. ACH payments travel through a different network, the Automated Clearing House, and generally incur much lower fees than credit card payments.

5. Again, the issuing bank authorizes or declines the transaction and informs the acquiring bank / payment processor who then informs the customer of whether the transaction was successful and their order was placed or not.

6. Finally, your customer will be sent to a confirmation page and/or likely receive an email in their inbox shortly after to confirm their order details and track their shipment if applicable.

7. The merchant is notified of the transaction and the payment processor captures their funds unless it is otherwise flagged for fraud or a potential chargeback.

8. That's it! The merchant can expect the funds to be deposited into their bank account in a few days and the order will be shipped to the customer.

How to get a payment gateway set up to take payments

Depending on the payment gateway tool and provider you want to use, you may need to sign up for an account and/ or merchant account. P.S. With Helcim, it's easy, free, and quick to sign-up, and our payment gateway tool options are free to use! Once you have an account and are approved to process payments, you will need to decide whether you need to accept in-person payments or online payments. Setting up a customer POS setup for traditional countertop payments is easy, and you don't need hardly any equipment at all. In fact, you can use just your iPhone or Android device to process keyed-in payments with Helcim's virtual terminal payment gateway. If you want a more robust setup or the option to use Chip, PIN, and contactless payments, then investing in a card reader or Smart credit card machine might work better for your business needs. If you already have a way to take in-person payments and want to expand your business to accept online payments via eCommerce, then you will need an online payment gateway.

Here are some questions to ask yourself when choosing the right payment gateway:

• Do I have an existing website or platform for customers to visit me and browse my products/ services?
• Do I need an online catalog or just a way for my customers to pay me online?
• Do I have coding/development expertise or resources to hire them?

These answers will help you identify whether you need a full online store, a hosted payment page, an API integration, or something else. Not sure which option is right for you? Check out our article on 4 payment gateway tools for any business.

What is a payment gateway responsible for?

Authorizing transactions

When a customer makes a purchase, the payment gateway will communicate with the customer's issuing bank to confirm that the funds are available for the transaction and that the purchase is approved before confirming that the payment has been processed. This is all completed in a matter of seconds so the customer can receive a confirmation immediately after making a payment. If you're new to credit card processing, you can check out this article on how credit card processing works for additional details on the different steps involved in a credit card transaction.

Moving money between customers and merchants

Because the payment gateway is facilitating the transaction between the customer and your business, it is responsible for moving the money from the customer's issuing bank to your business's bank account. While the funds will be removed from the customer's bank account immediately, it may take a few days for the deposit to make it to your business's account. Each payment processor will have their own deposit timelines, and this is something to consider when you are selecting your provider.

Communicating the transaction details

The payment gateway will notify the customer that the transaction is approved and has been processed while simultaneously communicating the transaction details to the merchant with the details of the purchase.

How can a payment gateway help your business?

Payment gateways can be incredibly helpful to businesses by helping facilitate the flow of commerce so online businesses can complete more sales and continue to grow. Some of the added benefits of using a payment gateway include:

Lessening security requirements

When you're using a payment gateway, the transaction takes place on your payment processor's servers, not your own. So, since you are not involved in accessing or transmitting the actual data from the transaction, you will have fewer security compliance obligations then you would if your business had access to the transaction data.

Provide added security to your customers payment information

Because payment processors must adhere to strict PCI-DSS compliance requirements, you can rest easier knowing they will be following best practices for handling sensitive personal information, and that they are not improperly storing your customers' credit card information. Many payment providers, offer card vaults and tokenization to allow your business to have access to customer credit card information whenever they need to make payments in the future, but without exposing you to the risk associated with directly storing credit card numbers.

Easy setup lets you start taking payments quickly

Payment gateways can be quick and easy to implement if you already have a website, shopping cart, or billing system in place. With a minimal investment of time and resources, you can quickly get your payment gateway set up and begin processing payments for your customers.

Seamless customer experience

Today's customers have plenty of choices for where to spend their money online which can mean it doesn't take much for them to abandon one purchase decision in favor of another. Using a payment gateway can help you deliver the payment experience your customers are expecting so they can check out quickly and easily using their preferred payment method.

What to look for in a payment gateway provider:

Selecting a payment gateway for your business requires the same type of evaluation that selecting any piece of software would. Be sure to evaluate features like:

Price

Evaluating the pricing structure and what the payment gateway will cost your business is an important consideration in selecting the right provider for your business. There are many different pricing structures used in the payment industry and some are a better fit for certain businesses over others.

Ease of set-up

Each business will have its own threshold for what constitutes "easy to set up" and what moves into the realm of being too complicated for their specific needs. This may also depend on the timeline your business has for needing to get a payment gateway in place. If you're scrambling to replace a provider and your customers are wanting to make payments today, then you're going to need a payment gateway that is quite fast and easy to set up. Whereas if you're launching your website six months from now, you will have more time to work through the steps required to set up a payment gateway with more complexity and a more involved onboarding process.

Customer support

Deciding what level of customer support will work best for your business is a personal decision, but if you know you prefer being able to get in touch with a real person, then it's worth looking into what support options are offered by different payment gateway providers before signing a contract. Depending on your level of technical expertise, you may want to be able to get help when you need it from the processor's support team.

Time to get paid

Different providers will have different timelines for when your business will receive the deposits from the transactions you have processed. These can vary from as quickly as two business days, all the way up to a week. If your business needs to receive the funds from transactions quickly, then you will want to ensure you select a payment processor who can meet your requirements.

Reliability

A conversation that can be well worth having with your payment processor is what their reliability stats are. This means asking if the company has experienced any downtime from their servers, and if so, how frequent or long are the outages. Having a payment processor who is able to provide consistently reliable service is important to your business, so you can consistently deliver the best payment experience and not upset or confuse your customers or lose out on any sales.

Security setup

As mentioned previously, because the payment gateway is responsible for properly handling customers' payment information, it is important that they are PCI-DSS compliant and have robust security standards in place to protect cardholder information. Most payment processors will list their security standards on their website, but don't be afraid to ask them about it if you're not able to find the information yourself.

Additional features

Based on your business needs, are there any additional functions or offerings that you would like your payment gateway to provide? Some items to consider include if they offer recurring payments, what the customer experience is like, and can they accept international credit cards.

Added functionality can also include the integrations offered by the payment gateway, as it's important to ensure that the payment gateway you select is able to support the shopping carts, billing systems, and accounting software that you may already be using. While it may not be a complete deal breaker if they don't have one of the items in terms of added functionality that you'd like, being able to use the same provider for multiple functions can help simplify your business processes and save money in the process.

Helcim's pre-built payment gateway solutions

Helcim offers a range of pre-built solutions that are suitable for businesses with varying needs and ideal for businesses who need a quick and easy way to accept payments online:

Online Checkout: Free to use and requires no coding experience. This is one of the quickest, no-fuss eCommerce options for you. With the functionality of online stores and the ease of a payment gateway platform, you get the best of both worlds.

Virtual Terminal: Charge your clients online, making it convenient for businesses that provide services remotely or industries that send out invoices (plus, you can toggle on Helcim Fee Saver to save on processing costs with ACH payments).

Hosted Payment Pages:: Easily add payment functionality to your website, allowing customers to make online payments seamlessly.

Helcim Pay.js: A user-friendly secure payment integration. It allows developers to easily integrate payment functionality into an existing website, including buttons and links, without the need to handle sensitive customer and payment data. This means Helcim shoulders the security responsibility (and security hoops), ensuring your business remains PCI compliant. With our plug-and-play plugin, your customers enjoy a seamless payment experience, and your business can focus on growth without the security concerns that come with building a payment gateway on your website.

Final thoughts

In summary, when choosing a payment gateway and processor, you should consider your business's specific needs, technical capabilities, and budget. Helcim provides a range of pre-built solutions for businesses of all sizes, while developer-centric options like Stripe offer extensive customization. The choice between pre-built and customizable solutions depends on your business's unique requirements and technical expertise. Additionally, selecting the right payment processor is crucial for efficient and secure payment processing.

If you're looking to add payment functionality to your existing website, shopping cart, billing system, or application, then Helcim can help. Our all-in-one platform includes a payment gateway API that allows you to easily authorize credit card payments in real-time so you can authorize new payments, void transactions, and manage your batches all from one place. Learn more here.

FAQS

Are payment gateways secure?

Payment gateways are one of the key ways in which merchants can make transactions on their website secure. In fact, people are more likely to purchase from a website that looks secure because it is associated with a payment gateway. According to a Baymard report completed in 2019 and published by Amazon, 19% of customers abandon carts because of security concerns. Equipping your site with a payment gateway gives you more control over the checkout process and helps your customers feel safe.

How is a Payment Gateway Different From a Virtual Terminal?

Though they both rely on the internet to work, a payment gateway is not the same thing as a virtual terminal. So what's the difference? Simply put, one is used by computer programs, the other is used by humans, though both have the same purpose: to accept an incoming credit card transaction.

A virtual terminal is a user-interface (often web-based) that allows merchants to log in to enter their customer's credit card number and manually process a credit card payment. It is great for humans, but not made for programs to interact with.

Is a payment gateway the same thing as an API?

APIs (application programming interface) bridge the gap between the merchant's systems or platform and the payment gateway, creating a smooth transaction flow. Unlike a web user interface (UI) where visitors interact visually with the platform, an API is a way for a program to be able to interact with other programs to interact with your payment gateway. Below, we discuss all the benefits and abilities of an API for your business's payments. A payment gateway (sometimes referred to as a payment API or RESTful API) is a specific URL that has no user-interface but is designed to receive an incoming transaction message. You can think of them as the connective tissue that allows businesses to integrate payment functionality into their applications, websites, or software systems effortlessly. These help with seamless processing, authorization, and real-time notifications.