February 19, 2020

What is a Payment Gateway and How Can it Serve My Business?

Samantha Hubay

Written by:

Samantha Hubay

What is a Payment Gateway and How Can it Serve My Business?

In this post, we’ll explore payment gateways, how they work, and why your business needs one.  

Table of Contents

  1. Using Technology to Meet Expectations
  2. What is a Payment Gateway?
  3. How a Payment Gateway Works
  4. Account Updater Technology


Using Technology to Meet Expectations

A surprisingly short amount of time ago, the internet didn’t exist. According to History.com, “the first workable prototype of the Internet came in the late 1960s with the creation of ARPANET, or the Advanced Research Projects Agency Network.” The more recognizable form of the internet, the World Wide Web, didn’t take form until 1990 and wireless internet wasn’t first introduced until 1998.

In the 30 years since the World Wide Web was founded, we’ve seen positively incredible advancements. There was a time not too long ago when you couldn’t pay your bills, buy a sweater, or order a meal online. And now, here we are, with all the internet power to make purchases with one swipe of our finger.

These advancements in technology have made us all come to expect certain things. For example, we expect to quickly make a reservation online for our favorite restaurant. We expect to have the power to order a chair we saw in a store online at any time. We expect for our recurring purchases to be made each month without incident.

As a small business owner, are you meeting all these expectations for your customers? If your business hasn’t moved completely into the digital age, there’s no time like the present! Adding innovative technology solutions designed to improve the way you do business will help you compete for your customers’ attention and loyalty. One of these innovative solutions you should be sure to add in order to be competitive is a payment gateway.


What is a Payment Gateway?

A payment gateway is the technology that allows merchants to accept credit card payments online and in-store. This payment acceptance solution includes physical card-reading devices to be used in your store along with a portal to process payments through your website. Depending on the processor you choose, your payment gateway can go beyond simply accepting payments.

For example, with a payment gateway from Electronic Merchant Systems, you can also:

  • Email invoices to your customers
  • Store customer credit card information in a secure vault for future transactions
  • Set up recurring billing to automatically process future payments
  • Update customer card-on-file information without a request

Now that you know what a payment gateway is, let’s look at how it works.


How a Payment Gateway Works

A payment gateway encrypts sensitive details such as a credit card number or customer information related to a payment. The main purpose of a gateway is to guarantee that all information is transferred securely from your customer to you. Here’s a step-by-step breakdown of what happens when your customer makes a payment through the gateway.

Step One: A customer places an online order or makes a purchase in your store.

Step Two: The payment gateway transfers the transaction information to your bank.

Step Three: The gateway verifies which major credit card brand issued your customer’s card.

Step Four: Your customer’s transaction information is routed to your payment processor.

Step Five: Your processor sends the transaction request to the customer’s bank and the information to their credit card network.

Step Six: Your customer’s bank analyzes the transaction for signs of fraud and confirms that they have enough credit to complete the purchase.

Step Seven: Your customer’s bank approves or declines the transaction and sends that information back through the credit card network to your bank.

As long as you have chosen an efficient payment processor, these steps can all be completed in a few business days or less.   


Account Updater Technology

Especially if your business depends on recurring payments, maintaining accurate customer card data is one of the greatest and most costly concerns you face. What happens when a recurring transaction fails? That typically means you need to reach out to your customer for a new form of payment. How do they react when they receive that call?

Unfortunately for some customers, that call is going to be too much of an inconvenience and frustration to be worth their time. Which means often when this happens, a customer will be tempted to terminate their relationship with you. This results in unexpected lost revenue that can harm your business.

If you’ve experienced this before or simply want to prevent it from ever happening, there is a solution! Account updater technology is the answer to keep those recurring payments flowing for your business. This solution allows you to add customer card information to a secure vault, which is automatically scanned regularly for updates that may cause an upcoming transaction to fail. These updates can come from replaced or expired credit cards or outdated billing information.

The technology then updates the outdated information with the customer’s new card number or billing address. The best thing about this process is, it’s done entirely behind the scenes! That means no phone calls to request new information and you’ll continue to see that revenue coming in.

Additional benefits of account updater technology include:

  • Fewer Transaction Failures: Keep recurring payments flowing.
  • Reduced Fees: With automatic account updates, you’ll spend less on authorization fees.
  • No More Manual Updates: Cut the customer service costs and time associated with manual updates.
  • Increase Customer Retention: Uninterrupted service means you retain more customers.

Check out our Account Updater video to learn more about how this technology can serve your business.



If your business is still operating in the past and you’d like to make a change, contact us today! We offer many financial technology products and services to help you grow your small business and compete in your marketplace.

Two men at cash register at cafe - Have questions? Our payment experts are here to help.


Sources: History.com, Lightspeed