Payment Gateways

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Payment Gateways are computer network servers and processes that send information about transactions to Acquiring Banks, and receive information from Issuing bank such as the approval of a payment.  These Payment Gateways are a tool to help communicate different banks.

The most important component is security.  The data they transmit is extremely sensitive such as credit card numbers and this data must be protected from fraud and theft.  Visa and Mastercard have created rules and standards which must be obeyed by anyone who accesses their payment system, including the gateways.  This list of standards and rules is called the PCI-DSS or PCI (Payment Card Industry Data Security Standard).

HTTPS protocol is used to transmit the order, which sends the information of the customer to the different banks involved in the transaction.  Many providers allow merchants to use additional options during the transaction, such as currency conversion and different payment methods.  All payment gateways charge a transaction fee in exchange for their part in the transaction.

How does an online payment gateway work?

Authorizing an Online Payment

1. An order is placed online

2. If the information is entered in a website, the data is encryped to be transmitted between the web browser and the seller’s server.   If the order is over the phone, the operator enters the customers credit card information in their server.

3. The credit card data is sent to the issuing bank by the card association such as Visa.  The issuing bank determines if the request is APPROVED or DENIED.  If it is authorized, the amount of the purchase is held pending the clearing of the payment.

4. The processor send the authorization information to the gateway, and then it is sent to the merchant.  This process normally takes a few seconds.  If the card was approved, the merchant completes the order.

Clearing an Online Payment

The above steps only authorize the payment.  Only when the merchant ships the order or delivers the service is the payment “cleared”.

The issuing bank changes the authorization hold to a debit on the account.  This allows the settlement of the payment with the acquiring bank.  Now the payment processor must send the money to the acquiring bank at the end of the day.

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What is the difference between a Credit Card Gateway and an Echeck Gateway?

ECHECK GATEWAYS use a different payment system than a card gateway.  These transaction are processed through the ACH electronic payment system, which is a form of instant payments processed through the American and Canadian banking system, or the Check 22 system, which generates an electronic check which is cashed similarly to a paper check.  The processing time can vary between instant and 3-5 days depending on the system and banks involved.  The requirements for an Electronic Check gateway are much less strict.  Mount Hood Payments can approve any merchant quickly for an Echeck gateway.

How many Gateway Providers are there?

There are a great number of payment gateway providers out there, including well-known ones like Paypal.  However the more important question is which providers will accept your business type and size and location. If you are in a high-risk industry such as Tech Support, Travel, or Online Pharmacies, or if you are located outside the USA, such as in India, then you will have very few options for providers that will accept you.  If your business is small, processing less than $20,000 USD per month, you will have fewer options, whereas a larger business processing more than $60,000 per month will have more providers willing to accept them.  However if you do not meet the requirements for a credit card gateway, you are always eligible for an ECHECK GATEWAY.

My gateway was terminated!

You can lose your ability to process payments if you break some of the conditions given by the aquiring bank.  For example if your CHARGEBACKS are over 3% of total transactions for a USA domestic bank, you might be terminated.  You also might be terminated for providing false information in your application.  Once you have been terminated, your business name will be put on a TMF LIST.  Now it will be much harder for you to get another merchant account.  HOWEVER THERE ARE STILL PROCESSING OPTIONS FOR TERMINATED MERCHANTS SUCH AS OFFSHORE GATEWAYS AND ECHECK GATEWAYS.

How to Set up your Ecommerce Payment Gateway (for Card Payments)

1. Submit your APPLICATION and REQUIRED SUPPORTING DOCUMENTS through a merchant account broker such as Mount Hood Payments.

2. The application is submitted to the acquiring bank which will offer the best terms and is most likely to accept the application.

3. Underwriting reviews the application and requests more information from the merchant if it is needed.  This can take between 24 hours to 1 week depending on the aquiring bank.

4. The application is APPROVED, CONDITIONALLY APPROVED, OR DENIED.

A conditional approval might include conditions such as a ROLLING RESERVE or a higher DISCOUNT RATE if the merchant is deemed more risky by the aquiring bank.

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