Understanding your Payment Gateway

by Eric Berto
published on: 07/05/2006

A payment gateway is the most important aspect of an ecommerce site. Sure, a person needs a URL to go to, an item to buy and a way to get it delivered. Without a payment gateway, however, the interaction between customer and store is im-personal and ineffective.

A credit card process or is just that. It transmits the buyer’s data to the seller’s bank to confirm the charges. By providing tools beyond a simple credit card processor, a payment gateway is a complete tool box for an online transaction. It fills gaps in integration with the shopping cart, links an ecommerce site with inventory management software and adds extra security features.

Renton, Wash.-based Bancard USA offers the kind of payment gateway to set an ecommerce site above and beyond a sim-ple shopping cart and checkout experience. Bancard’s National Sales Manager Shannon Coy said that the security a pay-ment gateway can offer is well worth the expense. If an account holder’s information is compromised, a merchant faces $150,000 in fines for each account.

“A small business should look into having a payment gateway to minimize its exposure to fraud,” Coy said.

It is still common to see a ledger at a business with the payment information of customers who have recurring payments. When a payment is due, the merchant pulls out a notebook and processes a payment. This is an unnecessary risk for most businesses as it exposes a customer’s account information. By shifting these recurring payments online and automating the process, a business, or even medical practitioner, can virtually eliminate its exposure to fraud, as well as cut down the man hours necessary to process the payments and maintain the books.

“Many medical practices keep a spiral notebook with their payment information,” Coy said. “When a balance is due, many practices simply open the notebook and when they want to run a payment, they pull the notebook out and run the payment.”

The account information for each customer is stored remotely in a secure location and accessible only by the merchant.

A payment gateway also allows a business flexibility with the payment methods it can accept. Electronic checks, debit cards and even gift cards are available to a merchant using a fully integrated payment gateway. This increase in flexibility opens new doors to profitability. One company that Coy has worked with has more than $50,000 on its books in unre-deemed gift cards. This is essentially free money. It also gives your website double the exposure. Not only is the purchaser of the gift card buying something, but the recipient of the gift card will also visit the site to purchase a product.

By expanding an ecommerce site to accept electronic checks, a business can actually save thousands of dollars. Coy said that on average, a merchant pays $7.50 in fees to process $300 in credit card transactions. But, by using electronic checks, a merchant that processes 1,300 transactions per month can save $4,200 per month if half of its customers begin using electronic checks.

The automation a payment gateway offers allows for a small business to focus on growing its customer base instead of manually processing recurring charges. A business such as a winery, which might have customers requiring a certain number of cases per month, can now process those payments automatically. A payment gateway, such as Bancard USA’s, is able to process the payment, send a confirmation to both the customer and the business and communicate with an in-ventory-control tool to pick, pack and ship the product.

There are many benefits to signing up for a payment gateway. The added security features, the ease of automation and the increased flexibility it can offer should leave small businesses asking themselves why they don’t yet have one.