What is a payment gateway?

One of the more common questions I get is about setting up a website to accept online payments and what you need to accomplish that.  Often times a business owner already has a credit card processing account with their bank and they assume this is sufficient for taking online payments but that’s just one step in the process.  While it is true that you need a business bank account in order to take credit card payments and deposit payments, you also need a payment gateway if you want to accept those payments online.  So what is a payment gateway?  The simple answer is that a payment gateway allows a portal (such as your website) to transfer encrypted private credit card details to a bank in order to complete the charge.  Internet sales are considered risky business so the rates are generally higher and you can’t even get a payment gateway account without going through an application process and paying a monthly fee for access to the system.  In the case of our software, we have integrated and support the Authorize.net payment gateway and it allows your customers to complete the entire transaction on your website for a more consistent experience.

So where does PayPal fit into all of this?  PayPal redirects your traffic temporarily to their own website and to use their own payment gateway to process the charge before sending your customer back to your website to view the completed transaction.  While this does add an extra step to the process, PayPal only charges a slightly higher percentage per sale but does not charge a monthly fee (for their base service).  PayPal also offers upgraded services that reduce or eliminate time spent on their website to achieve the same advantages of the Authorize.net service, in doing so they also charge a monthly fee for this.

I generally suggest that for most businesses a PayPal account is a perfect fit and requires less fees and setup time to get going.  After you’ve processed some orders and can justify extra monthly expenses for an Authorize.net account, go ahead and add that option.