A payment gateway is a technology employed by merchants to enable the acceptance of debit or credit card purchases from customers. It encompasses both the physical card-reading devices utilized in brick-and-mortar retail stores and the online payment processing portals in e-commerce platforms.
Brick-and-mortar payment gateways have also adapted to accept phone-based payments using QR codes or Near Field Communication (NFC) technology.
Payment gateways serve as interfaces for collecting consumer payment information. In physical stores, they consist of point-of-sale (POS) terminals used to accept credit card information either by card swipe or smartphone. In online stores, payment gateways act as the “checkout” portals where customers enter their credit card information or credentials for services.
It is important to distinguish payment gateways from payment processors, as the former primarily handle the collection of consumer information and its transmission to the merchant acquiring bank for processing, while the latter are responsible for collecting payments on behalf of the merchant.
Furthermore, there are specialized payment gateways that facilitate cryptocurrency payments, allowing consumers to transact using digital currencies like Bitcoin.
The functioning of a payment gateway is a crucial aspect of the electronic payment processing system. It acts as the front-end technology responsible for transmitting customer information to the merchant acquiring bank for transaction processing. Payment gateway technologies continuously evolve to adapt to changing consumer preferences and technological advancements.
In the past, payment terminals relied on magnetic strips and paper signatures from customers to accept credit cards. The introduction of chip technologies allowed for the replacement of paper signatures with personal identification numbers (PINs). Today, contactless purchases have become increasingly popular, with customers using their phones as payment devices, replacing traditional plastic credit cards.
The architecture of a payment gateway varies depending on whether it operates in a physical store or an online environment. Online payment gateways utilize application programming interfaces (APIs) to facilitate communication between the website and the underlying payment processing network. In contrast, in-store payment gateways use POS terminals that electronically connect to the payment processing network via phone lines or internet connections.
Written by Andrii Vovk