Payment Gateways are services that help you route the financial transactions from your online store to your business checking account in a secure manner. When you own an online business where customers visit your online store, you need to provide a means to make payments via credit cards, bank account or other financial accounts the customer may have. In addition to that, you need an internet merchant account, where you can deposit the amounts that come from your online store.


For an online business, you have set up a website with all the products that you can provide. The customer browses through the products, chooses some items in the shopping cart and is ready to pay. You have a form to collect all the billing data from the customer including credit card numbers or such. What happens next when the customer submits all the data? This is where the payment gateways and the internet merchant accounts come in.


Most local banks or financial institutions that people used in the past did not provide a direct and easy means to deposit through the net. Dealing with transactions through the net involves a whole new set of issues different from regular transactions that took place outside. There are many services available that provide an online merchant account. Along with an account, you also need an interface that securely collects and transmits payment information to the correct destination. This interface is called a payment gateway.


The data regarding a payment (Credit card number, type, expiration date, amount etc) that is entered in a website is encrypted and sent via a secure connection (SSL) to the payment gateway. The data has to be in the format specified by the gateway. The gateway then routes the information securely to a processor that verifies and processes the transactions. For a credit card payment, this process involves contacting the credit card issuer to verify and acquire the amount specified. The results of the transaction are then received by the gateway and an appropriate response is relayed to the merchant and/or the customer. If the payment processing was successful, this message is relayed to the merchant. The merchant can now ship the products to the customer.


The customer needs to have no knowledge of what is going on with the payment processing. The information regarding a payment is entered by the customer into the website created for this purpose. The gateway then interacts with this website through a software interface. Setting up this interface is called integration with the gateway.


It becomes important to choose the right payment gateway and/or internet merchant accounts for your shopping site. Some gateways have fraud detection systems that may be helpful. An Address Verification System (AVS) is also an optional service that verifies the billing address provided by the customer by contacting the card issuer.