A gateway is a company that provides the connection between a website, a terminal or any other credit card processing device and the credit card companies. It is structurally similar to an ISP that provides access to the Internet, except that gateways are involved only with financial transactions.
Gateways offer an API – an Application Programming Interface – so that no matter which hardware or software is used to initiate a transaction, the gateway will connect to it and transfer the information safely and securely to its destination. In order to successfully process credit card transactions you need an account with one of several gateway companies, in addition to a merchant account, of course.
There are several large gateway firms serving merchants and corporations alike. LinkPoint, PayFlow and Authorize.net are three of the biggest such firms in existence. Except for the specific technologies employed by each of them, the differences in the services they provide is negligible.
The gateway firm enters the transaction process the moment a merchant or customer hits the “send” or “submit” button on a payment-processing terminal. The information is sent to a transaction processor or “platform” like First Data Corporation. In certain transactions First Data can approve the transaction based on information in its data bank. If it does not possess the necessary information, or have the authority to approve or disapprove the transaction, it will forward the information to the acquiring bank.
The acquiring bank will then relay the information to the card association that, in turn, sends it on to the issuing bank.
Once a decision is rendered by the issuing bank the process is reversed and the approval, void or disapproval is sent back through the electronic chain where it is eventually displayed on the initial device used to start the transaction.
One of the primary functions of the gateway is fraud protection. LinkPoint has an excellent product called LinkShield that uses some of the latest advances in fraud protection software. Working hand in hand with leaders in the fraud protection industry, gateways are attempting to make credit card chargebacks a thing of the past.
It is the gateway that notifies merchants of approvals so that they deliver the merchandise to the customers. Later that night a batch transfer takes place and the transaction will be sent through the gateway again for completion. The gateway will ensure
- that the merchant receives his money,
- that all fees are paid to all parties involved in the transaction chain, and
- that the credit card issuing bank is notified to bill the customer, thus concluding the transaction.