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What is a Payment Gateway?

Whether you have a brick-and-mortar business or an online e-commerce store (or both), you want to provide several methods for accepting payments from your customers. Doing so is both good customer service and a means to increase your chances of completing a sale. To facilitate the payment process as well as provide a secure transaction, you will need to use a payment gateway.

What is a Payment Gateway?

A payment gateway is a sophisticated piece of technology designed to read a customer’s payment information and transfer the data to the merchant’s account. While this sounds like a rather simple process, there are actually several steps that occur within seconds of a customer initiating a payment.

In a physical store location, a gateway can be a part of a wired terminal or mobile swiper. Payment gateways can also work in conjunction with wireless terminals, which allow payments to be accepted at any point in the store.

When used as part of an e-commerce site, the gateway typically exists as cloud-based software. The software handles the online transaction and processes the payment.

Difference Between a Payment Gateway and a Payment Processor

A payment gateway and a payment processor work in conjunction with one another, but both have a very distinctive role. The purpose of the payment gateway is to collect and transfer a customer’s payment data to the appropriate merchant account. The payment processor uses the information collected by the payment gateway to connect to the customer’s bank or credit card issuer in order to confirm the payment and charge the customer.

Without the payment gateway first collecting the customer’s payment data, the payment processor would not be able to move forward with the completion of the sale. The payment gateway must first authorize the transfer of the financial data. Then, the payment processor can ensure that the merchant gets paid.

How Payment Gateways Work

Although a payment in a physical store or online appears to involve only the merchant and the customer, there are additional parties involved in each transaction. These include the financial institution that the customer has an account with, a credit card issuer, and the bank with which the merchant has an account.

When a customer makes a payment, the payment gateway software will collect the payment data. This can be done by a customer using a card at a physical POS terminal, swiper, or wireless terminal, or by entering card information online. The data is then encrypted and sent to the payment processor. The payment processor forwards the information to the appropriate financial institution or credit card issuer.

The credit card issuer or bank verifies the data and whether funds are available. The data is then sent back to the payment processor with an approval or denial of the transaction. The processor sends this message to the payment gateway, which then enables the payment to be processed and transferred to the merchant’s account.

How to Choose a Payment Gateway

When you open an account with a payment service provider, you typically receive whichever payment gateway technology they utilize with their systems and hardware. But not all payment gateways are created equal. You’ll want to be sure to choose a gateway that not only provides a secure and reliable interface for your business, but also a good payment experience for your customers.

The first criteria you’ll want to compare when researching payment services providers are cost, features, and support options. This should enable you to eliminate a few options from the start and then focus better on the remaining choices. Then you can compare the different features of each gateway more in-depth.

Consider these important questions when researching payment gateways.

What levels of security and encryption does the gateway provide?

Is the payment gateway (PCI) compliant?

What features does the payment services provider offer and will they benefit your business?

What payment methods will the payment gateway accept?

Does the payment gateway accept enough payment methods to satisfy the needs of your customer base?

Can the payment gateway be easily integrated with your website and POS equipment?

You’ll also want to choose a gateway that can be scaled appropriately as your business grows. Consider the payment flows of each payment gateway and see which is most appropriate for your business.

Support is also an important aspect to consider. You’ll want to work with a payment services provider that provides outstanding customer support and is readily available to assist with any troubleshooting. You’ll feel more comfortable with a payment services provider that offers strong support options.

Lastly, security is also a key factor. Customers expect their transactions to be secure, especially when they make a purchase online. Secure payment options are a must.

Many businesses ultimately choose or make the switch to LOLA POS., which combines industry expertise with personalized service to create a positive impact for your business.


LOLA POS. (LOLA POS) is a merchant advocacy group dedicated to reducing or eliminating the unnecessary fees associated with accepting credit card payments. Since 2004, LOLA POS’s payment processing solutions have been delivering tailored solutions, best-in-class customer service, and high-quality service offerings for businesses across multiple industries. Whether it’s high-risk or low-risk, brick-and-mortar or e-commerce, LOLA POS will create the best processing experience for your company. For more information, visit us at www.lolapos.com or call (866) 509-7201.

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