As we know, payment gateway solutions are far more complex than they may seem from the outside. These solutions can become even more complicated depending on what service you use and how you organize your virtual store.
So how many kinds of these gateways exist? There are generally three types:
1. Local, platform-based gateways
These gateways are typically hosted on the merchant’s own server. Typically, this option is best for large businesses with a high volume of daily purchases. With a local gateway, a business owner is completely responsible for processing customer payments. This can be costly to implement and maintain, but gives you the most control over your payment system.
2. Offsite payment gateways
Online payments systems like PayPal and Stripe are good examples of this kind of gateway. When a customer makes a purchase, they are redirected to a payment form on a third-party server. In these cases, the payment system handles all of the payment processing, ensuring PCI compliance and an easy checkout for your customer.
3. On-site payment gateways
On-site payment gateways are similar to off-site options, but this time, the customer completes the checkout on your website. The payment processing is completed on the back end, using a third party server that completes the payment. In this case, you have the benefit of keeping the checkout process local, without redirecting your customers to another website to make a purchase. You still get the benefits of a secure payments system while controlling the checkout process for your buyers.
All of these payment gateway types have a few things in common. Whether you decide to host your virtual payment terminal on your own server or use a third-party host, payment gateways are just a part of the payment processing operation.
Imagine you’re buying a sweater from your favorite online shop. You select your item, type in your credit card details and authenticate your identity with your address, location or other information. Once you initiate the purchase, your credit card information passes through the payment gateway, which pushes the data to either the merchant bank or other acquirer. The payment gateway then determines the card network, such as Visa or MasterCard and sends the information to your issuing bank.
Your bank then approves your sweater purchase, and sends that information back through the credit card network through the payment gateway and to the merchant account. If everything goes well, the payment processing terminal confirms your purchase and your sweater will be on the way.
If that seems like a lot of steps to you, you’re not alone. In fact, it’s pretty common for business owners to use several types of software and payment solutions in order to protect and accept their purchases. Depending on your payment solution, your payment terminal, gateway, processor, and merchant account could be brought together by a few different third-party companies. So how do you choose which payment solutions are right for your business?
Related: Payment Gateway vs Payment Processor: Everything you need to know