A Payment Gateway is a specialized application that works as the intermediary between the merchant and the payment processor. It is the virtual substitute of a physical point of sale and it is in charge of verifying, and accepting or declining credit card transactions through the card payment networks. This service is provided by a third party who usually sets up in a single process a merchant account and payment gateway.
Payment gateways normally offer the following supplementary tools:
- Fraud Prevention Tools: the internet has become the best channel to do business but also the best weapon to commit fraud. Since the majority of credit card fraud is taking place in the web, most of the payment gateways offer fraud prevention tools, e.g. AVS, CSC, etc.
- Subscriptions and recurring billing: since many websites offer subscriptions, often payment gateways also offer the option of recurring billing which consists in paying on a regular basis for an ongoing product or service.
- Payment history: every single payment that has been processed over the gateway is automatically recorded for future reference.