What is a Payment Gateway?
October 23rd, 2019

As the processing industry has grown larger and more complex over time, bridges between various pieces of the processing puzzle have become a necessity. Payment gateways are just that: a link between a merchant’s point-of-sale system and their chosen credit card processor.

A good analogy to consider is that of a pizza delivery man. When you order pizza, the delivery man packages up the pizza and delivers it where it needs to go. Gateways operate in the same way by encrypting cardholder data and delivering it to its destination.

Who needs a payment gateway?

In the olden days, merchants copied down card information then called their bank to provide the card information and complete the transaction. That phone call was the first payment gateway. In recent years, gateways have moved online, making them much quicker and more reliable. But the need for gateways remains the same. Any business that does not have a point-of-sale system with a direct connection to their processor will require a payment gateway.

A point-of-sale can come in many forms, whether that be software, an application, or an eCommerce platform. Gateways are made to be as versatile as possible, allowing merchants to connect processors to whatever they might use to accept payments. There are several styles of payment gateways that can work with any form of currency including cards, checks, and even newer currencies like bitCoin.

In most cases, online stores will require a payment gateway. The only way to avoid one is if your eCommerce platform or shopping cart offers a native payment processing option. Many popular platforms, such as Shopify, allow you to choose between their native processing option and connecting to a third-party processor. If you choose to go third-party, you’ll need a payment gateway.

For brick-and-mortar businesses, it all depends on your point-of-sale (POS) software. If you choose an all-in-one system like Clover or Square, your hardware will be directly tied into your processor, allowing you to avoid a gateway. If not, you’ll have to utilize a gateway to transmit cardholder data from your hardware to the processor.

How payment gateways fit into the payments process

Now that you have a basic understanding of what a payment gateway is and the work it does for your business, let’s dive a little deeper to show how it works with the other parties involved in a transaction. Here’s how it works: 

  1. The customer swipes their card to initiate the transaction.
  2. Your customer’s payment information is collected by the payment gateway, encrypted, and passed on to the processor. 
  3. The processor verifies the card information with the card-issuing bank and checks to see whether the associated account has sufficient funds.
  4. Assuming the transaction is approved, the processor passes the transaction information back through the gateway to your POS system.
  5. The funds are transferred from the customer’s account to the merchant account.

Because they are so closely connected, it’s fairly common for merchants to confuse payment gateways and payment processors. While it is possible for one entity to fulfill both roles, the general rule of thumb is that a gateway receives, protects, and delivers data, while the processor verifies the data and transfers funds.

Payment gateways with Sonder Payments

Sonder Payments members have access to numerous gateway options, but we typically recommend Authorize.net. Authorize.net is highly versatile and will plug into almost any point-of-sale system you might be using. Our partnership with Authorize.net allows us to create and manage a gateway account on your behalf. You’ll even get lower rates than you would if you were to approach Authorize.net directly!

If you are a Sonder Payments member in need of a payment gateway, please contact your support representative for assistance in setting up your Authorize.net account.