You’re buying a Ming vase. You take your vase to the counter, where the clerk scans your credit card. “I’m sorry,” she says. “This card has been declined.”
Your card was just bounced by the payment gateway, the first hurdle a credit card needs to surmount in order to be successfully processed. In a retail store, it’s the point-of-sale machine that usually sends the card information to the credit card issuer to confirm the purchaser has adequate funds.
Payment gateway in online sales
An online sale is slightly different. A payment requires two components from the seller: a payment gateway and a merchant account (or aggregator). You have a Ming vase in your online shopping cart. Your shopping cart hooks up with a payment gateway that’s performing essentially the same functions the point-of-sale machine performs in a bricks-and-mortar store.
A request is sent to a credit card processor, and—if this time you’ve gotten lucky with your Ming vase and the payment is approved—the payment information moves from the payment gateway to the merchant account, where it’s packaged to be submitted to the merchant’s bank, also called the acquiring bank.
To accept credit cards online, you need a payment gateway. It has to be compatible with the shopping cart and needs to be programmed with the merchant account information, so it’s probably something to get after you have your shopping cart and merchant account set up.
Some services combine a payment gateway and a merchant account. These services are called aggregators, and PayPal is the best known.
If you have a retail store and want to open an online store, or use a smartphone to take payments on the go, your retail payment gateway may also be able to handle your online and mobile transactions. (If you already have a merchant account for a retail store, you may need to ask your bank to also set up an Internet merchant account.)
Understanding the payment gateway fees
When evaluating payment gateways, you’ll often see a discount rate listed. This is the commission that’s taken from the payment and typically split between the merchant account, the payment gateway, and the credit card provider.
But you will also find payment gateways that only include fees for their services – not the merchant account fees, which are extra. Yes, it can be confusing! So make sure you know what the fees are covering before you decide on a payment gateway.
Payment gateways also often charge monthly fees, though sometimes fees are optional and depend on how many services you choose. On top of these fees, payment gateways charge transaction fees. Setup fees are also common, and they can range from $49—$250. Fortunately, this is a one-time charge.
The leading payment gateways
When choosing a payment gateway, you’ll need to evaluate how many transactions you’ll be processing. PayPal and Google Checkout are appropriate for low volume sales. They use aggregator processing, so they’re cheap and easy to set up.
For heavier volume, payment gateways like Authorize.Net or PayPal PayFlow Pro work better. These payment gateways also make auto-billing, or storing credit card numbers, possible.
Authorize.Net is the payment gateway industry leader. It has a $99 setup fee, costs of $20 per month plus $0.10 per transaction and $0.25 batch fee (charged per day for days you have credit card transactions). This rate excludes the merchant account rate.
Flagship Merchant Services charges between 0.38% and 1.58% plus $0.19 per transaction. This fee is for a merchant account and a payment gateway from Authorize.net. It offers month-to-month agreements and no setup fee.
Another merchant service provider which utilize Authorize.net is Leaders Merchant Services. It charges card-not-present rates of 0.89% to 1.99% plus $.10 to $0.26 per transaction, or card-present rates of 0.35% to 1.58% plus $0.10 to $0.18 per transaction. On top of that there is a monthly fee of $8, but this may vary according to your business type and volume.
Other major players offering both payment gateway and merchant account include Intuit Merchant Services, Chase Paymentech, and GoEmerchant.