How does an online payment gateway work?
With almost every business transaction being facilitated through the medium of online webpages and payment processors, it’s no wonder that people are required to understand such terminology when considering online payment services, either for their own businesses, to simply satiate their curiosity, or to reassure themselves on the security measures of providing your account details to an online webpage. The most curious and engaging of all aspects of an online transaction is the payment gateway, as it acts as a bridge for the bank and the online portal.
The online payment gateway, generally, receives the credit card information from the online portal, encrypts the information, send’s it across to the bank’s payment processor, receives an encrypted code from said processor which it decrypts to provide an acceptance or a declination from the bank. Technically it’s an e-commerce application that acts as an added security measure for online transactions.
Therefore, to properly understand how it works, we’ll need to take a look at the entire online payment service.
1. Customer’s Order
A customer, hoping to buy a certain product displayed online on a website, will press a button on the website that usually redirects him/her to an online payment form. Here the customer will add their own credit/debit card details, and address if it’s supposed to be shipped.
If the transaction occurred through a specific website, the website itself will encrypt the information by SSL or secure socket layer encryption, which then sends the information to the merchant browser.
The merchant browser, then, forwards this information on to the payment gateway, which encrypts the information once more with SSL, only to forward the information to the payment processor, that can alone decrypt it, to check if the information fits the bank description, as well as the funds present in the account.
In other situations, the gateway can even bypass the merchant browser, with the information being encrypted straight into the payment gateway.
Once the information is decrypted, checked with the bank, based on the authorization request, the bank provides a response code back to the payment processor. This code includes the status of the transaction, i.e. if it was accepted or declined, along with a definition of the reason.
The response code is then transferred by the processor to the payment gateway. Here it’s forwarded, while being encrypted, to the online server, where the status of the transaction is displayed likewise, forwarded to the customer as well as the merchant. A process known as “Authorization”, it takes around 2-3 seconds to provide it to the customer, depending on their internet speed.
4. Merchant’s pay
Once the customer and the merchant know of the status of the transaction, if it has been accepted, the process moves on to deposit the amount into the merchant account. This information in relayed through an encrypted code, applied through the payment gateway, onto the processor and eventually the bank. This information not only includes that one transaction, but the rest of the transactions that took place that very day as well, in a single batch. Once the funds are settled, it normally takes two business days for them to be deposited into your actual business account.
Most Payment service providers will provide you with reports of your transactions, typically processed through the payment gateway. You can download, review, or print them, after having received either an email or a link.
But that’s not all a payment gateway does. There are still a few more advantages to using a payment gateway for most of your online transactions.
- Unlimited Transactions: you can have multiple users utilizing the payment gateway for transactions, all at the same time. Seeing how it’s simply a bridge, this is an appropriate and expected feature to have.
- Less Fraudulent Transactions: a payment gateway includes several tools, along with its SSL encryption, to take care of fraudulent activity, through CCVs, as well as protecting the data by saving it onto the payment gateway instead of the website itself.
- Multiple Payment Options: a payment gateway has better access to many payment options, especially when you’re thinking of expanding the business globally.
To conclude, we hope you’ve understood how a payment gateway works, especially regarding online transactions, and why it is a huge benefit to have.
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