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What is a Credit Card Gateway?

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  • Written By: R. Kayne
  • Edited By: L. S. Wynn
  • Last Modified Date: 13 September 2016
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    Conjecture Corporation
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A credit card gateway is one element of a suite of e-commerce software packages that when incorporated into a website, allow for online shoppers to pay for goods and services with VISA, MasterCard, Discover, American Express or ATM debit card.

To purchase items online, visitors add products to a virtual "shopping cart" that holds item(s) while calculating a running tab of charges. The shopping cart is provided by the host's e-commerce bundle which can run anywhere from $50 - $100 per month, or more depending on features. The customer clicks a "checkout" or "buy" button when shopping is complete, and is transferred to a page generated by a secure server. This server houses the credit card gateway. All data passed between the secure server and the customer's computer is encrypted en route and only decrypts at the destination point. Before negotiation starts, the secure server passes a certificate of authenticity to the customer's browser to verify its legitimacy and identity. If there are any problems with the certificate, the browser alerts the customer not to continue with the transaction.

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Assuming this "handshake" goes well, the customer then supplies name, address and credit card information and clicks "send" or "submit". The information is encrypted by the browser then sent to the secure server and decrypted upon arrival. The software protocols in the credit card gateway use the information provided to check for availability of funds and to make sure the credit card is not expired, lost or stolen. This takes only seconds. When the transaction is approved a receipt is generated for the customer, and the funds are transferred to the vendor's bank account.

Companies that offer a credit card gateway normally charge the merchant certain fees. These vary widely but the following is an example of charges that might be incurred:

  • One-time setup fee: $200 - $600 (USD)
  • Secure transactions fee (monthly): $15 - $30
  • Technical support + administration report fee (monthly): $10 - $15
  • Percentage fee of each sale (volume/card-dependent): 2.5% - 3.5%
  • Transaction fee on each sale: $0.25
  • Monthly minimum quotient/fee: $15 - $25

The "monthly minimum" charge only applies if percentage fees + transaction fees for a given month do not equal or surpass the minimum amount. The percentage fee of each transaction varies depending on the card used and the volume of sales generated by the merchant. High volume sales reap lower percentage fees. This fee is actually called the Discount Rate, which can be confusing since it is a fee.

Credit card gateways are often bundled with e-commerce packages but can also be offered independently. Some companies will eliminate certain fees while charging more for others, or charges might be far less in all areas. Heavily discounted gateways may sacrifice customer service to the merchant or have frequent downtime or other considerations so thorough research is recommended.

For those interested in an e-commerce site and credit card gateway without the time to investigate or set it up, a reputable website design company is the answer. With basic information about the products you want to sell and how many you want to offer, they will put together a proposal that will cover everything from the e-commerce host package to design and functionality. They will also configure the shopping cart to integrate with the credit card gateway, and will give your site a professional look that is likely to boost sales.

A low-cost alternative to a credit card gateway for smaller businesses is a service such as PayPal or iBill, which provides an integrated shopping cart/gateway for easy online purchasing. There are no sign-up fees, monthly fees or minimums, and the transaction fees are modest.

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