Credit card services involve many moving parts, and one of those moving parts is known as the “payment gateway”. This part of the transaction is the portion that moves the money to and from the payment processor, but it’s not to be confused with the payment processor or merchant account. Confused yet? Then this guide should help.
How a Typical Transaction Works
Typical payment processing begins with the customer swiping his card at the credit card machine. He may also place an order on a website clicking “submit”, or some equivalent button. The user’s browser encrypts the information before it’s sent anywhere, which is made stronger if the site utilizes SSL encryption. The merchant receives that transaction, but can’t touch the money.
The merchant service provider typically doesn’t control the means of getting the transaction to and from a bank. That company forwards the payment to the gateway, which also adds an additional layer of SSL encryption.
The information is forwarded, like a hand off, to the credit card bank. They verify the transaction as authentic and they approve or decline it. They simultaneously issue a response code to the merchant’s processor, indicating whether the transaction was approved or denied. The processor then uses the payment gateway to send that code to the merchant’s bank. This starts the full authorization process, where funds begin to transfer.
At the end of each day, the merchant submits all processed transactions as a “batch”. This batch records their sales for the day, which completes most of the work transferring funds. After that, the banks have to work out the exchange which can take about 24 hours. If everything goes smoothly, the transaction itself will take about 2-3 seconds, while the transfer will take a maximum of 72 hours.
Final Thoughts
A payment gateway is necessary to running a merchant account. Few of these companies manage their own, so the costs of the transfer are a part of the costs a merchant pays at the credit card machine. If you’re considering a merchant account for your new business, be sure choose the interchange plus model for your pricing plan. If you choose a flat rate, all of those costs are lumped into a single transaction fee. With interchange plus models, you get a fair rate based on the type of transaction your process. Ultimately, that can reduce the fees you pay.