Advantages of choosing a credit card terminals system over a payment gateway

By FirearmsMerchant on January 20, 2011 In Information Technology

To carry out an online transaction using a credit card, the first thing a website requires is a payment gateway, a payment gateway is essentially a replacement for a POS (point of sale) terminal. Instead of physically swiping the card, a customer enters the details into a website, and the details are then passed on to the payment gateway that then returns a code to let the website know if the transaction has been authorized or not. In fact if required even a POS terminal can also be linked up to a payment gateway.

The fact to be noted here is that instead of physically swiping a card, the card details have been entered by a person, who claims to be the owner or authorized signatory of the credit card, there is no way for the website to really know if the person using the card is actually the owner of the card, there is no way to match the signatures, and neither is there an option to view the photo id of the individual to compare it with the photo on the credit card. In essence the online website assumes that the credit card is not being misused. In a perfect world there would be no problem with the system, however the truth is that millions of dollars of fraudulent online transactions are carried out each year.

Today it has become essential for an online business to find more effective ways to combat credit card fraud, and charge backs. Payment gateways do not have any inbuilt mechanism for fraud detection, this is where credit card terminals systems step in, specialized credit card terminals systems are designed to not only process a transaction, but to also calculate the probability of a transaction being paid at a later time. Agreed there is no substitute for matching a signature or verifying the photograph on a credit card, however credit card terminals systems have fast become a great tool for fraud detection.

How a credit card terminals system works varies from company to company, but the core principle is the same, credit card terminals systems have access to the past transaction history of the credit card holder, and they also use information like the country of issue to make up a composite of the credit card holder. Each parameter (there are hundreds) is then assigned a certain weightage, the credit card terminals system then works out the probability of the transaction being paid, or resulting in chargeback. For example, if a person has a repeat history of chargeback then the credit card terminals system will duly note this, and the chances that the credit card terminals system will approve the transaction are much lower.

Apart from fraud protection, credit card terminals systems have various merchant tools that allow an online business to manage its transactions in an effective manner. The advantages of using a specialized credit card terminals system are vast, and depending on the nature of one’s business, an online business should consider hiring a credit card terminals firm instead of going for just a regular payment gateway.

Business Merchant Account is a internet credit card processing expert and writes for retail credit card processing and Payment Processing web sites.