What Is a Credit Card Gateway?

A credit card gateway, or an Internet payment gateway, is an intermediary that secures data for a credit card transaction. The gateway provider is independent from the merchant, the customer and the banks. If a merchant decides to use a credit card gateway, the gateway may include an additional charge for conducting the transaction. A credit card gateway usually provides services to many merchants.


The purpose of the gateway is to allow a merchant who operates an online store to conveniently send encrypted financial data across the Internet. The gateway can decrypt the data, and then use a more secure communication channel to send unencrypted information to the credit card holder's bank. A retail store does not need a gateway if it has a separate phone line or other communication channel that allows it to send messages to a bank without using public communications systems, which is common for physical stores.


A credit card gateway also performs some authorization services. The gateway can check for the presence of basic information, such as the credit card holder's name and address, or the validity of the credit card number or the security code on the card. The gateway company does not know what the available balance on the credit card is, so the credit card holder's bank may reject a purchase request after the gateway accepts and transmits it.


The credit card gateway stores the merchant's money temporarily after the customer's bank authorizes the purchase. The gateway places the money in its own bank account for a short period before it transfers the funds to the merchant's bank. If several customers have purchased products from the merchant, the gateway combines the money from each purchase and transmits a single batch payment, usually at the end of each business day.


A credit card gateway also organizes transaction data for the merchant. Because the gateway stores credit card information, it is convenient for a merchant or government agency that does not wish to retain its customers' financial data for liability reasons. The credit card gateway can provide historical financial records, and it may allow the merchant to download credit card sales information into a financial software program.