What Exactly is a Payment Gateway?

• What Exactly is a Payment Gateway?
  • A payment gateway is actually a system of computer processes that transfer, verify, submit and receive transaction information to the credit card network on behalf of the merchant, using secure Internet connections. The payment gateway is the infrastructure that allows a merchant to accept credit card and other forms of electronic payments.
  • Payment gateways can be implemented in two different ways. The payment gateway could be a secure order form that takes the customer to a third-party site for the credit card processing, or it could be managed as what’s called a merchant API (application program interface) that is integrated with the server hosting your site. In this scenario, the customer never leaves the merchant’s Web site.
• How Does a Payment Gateway Work?

1. A payment gateway performs very specific processes. It is actually a lengthy, regulated process, even though the transaction authorization happens only seconds after the customer submits the check-out button on your site. Here is how a payment gateway facilitates online transactions between you and your customer:
2. The customer submits credit card information on the merchant’s Web site, on a secure page.
3. The transaction is encrypted and the merchant submits the customer’s credit card information to the payment gateway.
4. The payment gateway receives the information from the merchant, and then passes it along to the merchant’s bank processor, using a secure connection.
5. The merchant’s bank processor submits the transaction information to the credit card processor.
6. The credit card processor routes the transaction and verifies the information and funds with the customer’s issuing bank.
7. The credit card issuing bank will either approve or decline the transaction and send the results back to the credit card processor, and it also provides the transaction results to the merchant’s bank processor.
8. The merchant’s bank processor sends the results to the payment gateway. At this point in the transaction, the payment gateway stores the transaction on behalf of the merchant and the customer. The authorization process by the payment gateway is complete — in just a couple seconds.
9. Finally, the transaction is completed when the credit card-issuing bank sends the funds to the credit card processor, which passes the funds to the merchant’s bank for deposit to the merchant’s bank account.

Vangie Beal (2010). E-commerce Guide. Buyers’ Guide: Choosing a Payment Gateway Provider. Retrieved from http://www.ecommerce-guide.com/solutions/secure_pay/article.php/3869546/Buyers-Guide–Choosing-a-Payment-Gateway-Provider.htm