4 min read
Key takeaways
- Online payment processing needs secure infrastructure to handle digital transactions.
- The right gateway protects sensitive payment data while making transactions simple for your customers.
- Understanding your options helps you select a gateway that fits your business model and technology needs.
Payment gateways are essential to online transactions, enabling e-commerce and digital businesses to thrive. By ensuring that payment data is captured and transmitted securely, these technologies provide a seamless experience for both merchants and customers.
What is a payment gateway?
A payment gateway is a technology that serves as an intermediary for online transactions, connecting customers and businesses with their banks and payment processors. It securely captures and transmits payment data as part of the broader payment processing ecosystem, helping protect sensitive information at every step. International payment gateways can also handle currency conversions and other processes in cross-border transactions.
Payment gateways offer two main implementation approaches:
- Hosted gateways redirect customers on a merchant’s website to a secure payment page hosted by a third-party service for entering their payment details, making implementation simple while reducing the merchant’s security compliance burden. Once the transaction is processed, the customer returns to the merchant’s website.
- Integrated gateways, by contrast, enable transactions directly on the merchant’s website or app, providing a seamless user experience but requiring more stringent security measures.
Many integrated gateways use application programming interfaces (APIs), allowing developers to customize the payment experience. This flexibility enables merchants to tailor payment fields, display multiple payment options and create a branded experience that matches the rest of their website or app design.
How do payment gateways work?
Payment gateways act as the digital equivalent of a point-of-sale terminal in a physical store, but with additional layers of security and verification. Just as a card reader processes your in-store purchase through multiple steps, a payment gateway guides online transactions through a sequence of secure actions:
- Authorization: After a customer enters their card data and billing data, the payment gateway sends the customer’s transaction details to the merchant’s bank (the acquiring bank), which forwards it to the customer’s bank (the issuing bank). The customer’s bank verifies available funds and transaction legitimacy before sending back an approval code.
- Authentication: To help prevent fraud, the payment gateway verifies the cardholder's identity through security measures. These might include 3D Secure protection, a security protocol that prompts the cardholder for a password or a one-time passcode.
- Clearing: After authorization and authentication, the payment gateway sends final transaction details to card networks like Visa or Mastercard for processing. Clearing can also involve other payment networks the business uses, such as PayPal, buy-now-pay-later (BNPL) platforms and cryptocurrency platforms. Following the clearing step, the customer’s bank transfers the funds to the merchant’s account—typically within a few days—in an action known as “settlement.”
Throughout the transaction process, advanced encryption and multiple security layers protect sensitive data. Payment gateways use industry-standard encryption protocols like Secure Socket Layer (SSL) to safeguard cardholder information. All U.S. organizations handling payment cardholder data must meet strict Payment Card Industry Data Security Standards (PCI DSS) —a set of requirements designed to prevent fraud and data breaches.
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Choosing the right payment gateway for your business
Selecting the right payment gateway is a strategic decision that affects your business operations, customer experience and growth potential. Consider several criteria, including:
- Cost structure: Evaluate all fees—monthly service charges, per-transaction fees and any other costs—for specific features or transaction-volume levels.
- Security compliance: Ensure the gateway meets current PCI DSS requirements and offers fraud protection tools to safeguard both your business and your customers.
- Scalability potential: Choose a solution that can grow with your business, handling increased transaction volumes without performance issues or significant cost increases.
- Payment versatility: Look for support across payment methods—from traditional credit and debit cards to digital wallets and other emerging payment technologies—to meet diverse customer preferences.
- Integration capabilities: Assess how the gateway will connect with your existing systems, including your e-commerce platform, accounting software and business processes. Consider both the technical requirements and any staff training needs.
- Support resources: Verify availability of 24/7 technical support, implementation assistance and ongoing account management to resolve issues quickly.
Additional strategic considerations include processing speed for customer satisfaction, currency conversion capabilities for international growth and support for recurring payment models to build stable revenue streams. Look for comprehensive reporting and analytics dashboards that provide visibility into transaction patterns, customer behavior and cash flow management.
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JPMorgan Chase Bank, N.A. Member FDIC. Visit jpmorgan.com/commercial-banking/legal-disclaimer for disclosures and disclaimers related to this content.
