What Is A Payment Gateway? And Learn How Does It Work?

With the recent ongoing online activities, the growth of online payment gateway has emerged that makes the businesses learn and understand the importance of it and incorporate it in their business. A payment gateway is a technology that secures and transfers data from the customer to the receiver. It keeps the payments process running smoothly, ensuring online payments for consumers and businesses. If you are a seller, you don’t need to be an expert, but it would be helpful to understand how a payment gateway works and how the online payment flows from the customer to the seller’s bank account. This blog will help you retain all the necessary information about payment gateways and how it works.

What are Payment Gateways?

Payments gateways are online payment services that, when incorporated with the e-commerce platform, are devised as the medium to make and receive payments. Though there is no specific payment processing definition, receiving payments includes the consumer filling out details like credit and debit card numbers, expiry date and card verification value. After this, the consumer moves to make the payment, which gets transferred from the buyer’s account to the merchant’s account.

A payment gateway can be offered by the banks directly or by a payment service provider authorized by the bank. However, the prominent role of payment gateway eCommerce is to approve the transaction process between the seller and the customer. It plays a critical role in the online transaction process and enables transactions between seller and consumer. In addition, it helps the eCommerce platform deepen its existence with the ease of payments to offer its buyers. Moreover, it also leads to the eCommerce platform gaining the affinity for leading the fast and quick charge and success every time.

Why Do We Need A Payment Gateway?

Some of you might think of a payment gateway as only an intermediary, but before we can find the perfect answer to why we need a payment gateway, let’s recall that online payment is processed without physical card transaction. The customer card is not physically used on a POS terminal. With online payment, the merchant depends entirely on the card information the customer enters on the payment page. But how can a person be sure that the customer is using this card? There are higher chances of fraud in this type of payment mode, and here the payment gateway does its magic.

A payment gateway acts as a gatekeeper of the customer’s data. For online merchants, a payment gateway transmits the information from the buyer, the seller, to the acquirer and the issuing bank using data encryption to prevent unwanted threats. Moreover, a payment gateway protects merchants from expired cards, insufficient funds, exceeding credit limits and closed accounts.

How Does The Payment Gateway Work?

The functioning of gateway service web payment follows a set of processes for settling the amount every time. And it happens when a customer orders a service or product from a payment gateway-enabled seller. From filling out the card details to finally making the payment into the merchant account, the payment gateway goes through several steps. Below we have listed out the steps, but before that, there are some terms that you must understand-

Merchant Account-

As a business owner, you will need a payment gateway and a merchant account to accept online transactions. A merchant account is a different bank account that businesses use for receiving their payments. During a transaction, the customer’s amount is initially transferred to the merchant account, which remains until you move it to your regular bank account.

Payment Processor-

Now let’s move on to the payment processing definition mentioned below. A payment processor is a service that authorizes the customer’s card details to ensure they have enough funds in their account. The payment processor approves the transaction, and the payment is deposited to the merchant account, and if the balance is insufficient, then the transaction is rejected.

Step 1-

After the buyer confirms the order online and proceeds to make the payment for the same, they need to enter debit or credit card details.

Step 2-

The card details are encoded securely with Secure Socket Layer encryption to be sent between the portal and the seller’s web server. The payment gateway removes the seller’s Payment Card Industry Data Security Standard compliance consent without redirecting customers away from the website.

Step 3-

After the above step, the seller forwards the transaction details to the payment gateway, which is also a Secure Socket Layer encrypted connection to the payment server introduced by the payment gateway.

Step 4-

The payment gateway converts the message and then moves the purchase information to the payment processor used by the seller’s acquiring bank.

Step 5-

The payment processor moves the transaction information to the card association, Visa/MasterCard/American Express.

Step 6-

In this step, the credit card issuing bank gets the authorization request, verifies the debit or credit available, and then sends back the response to the processor with a code response. Here the response code also helps to communicate the reason for a failed transaction.

Step 7-

The processor forwards the response to the gateway, and the payment gateway receives and forwards it to the interface used to process the payment. The process is known as Authorization which usually takes 2 to 3 seconds.

Step 8-

After the above process, the seller then fulfils the order, but the above process can be repeated, but it could be to clear the Authorization by realizing the transaction. Usually, the ‘clear’ is initiated only when the seller has fulfilled the transaction. This appears in the issuing bank clearing the Authorization and preparing them to settle with the merchant acquiring bank.

Step 9-

The merchant submits all approved authorizations in a ‘batch’ to their acquiring bank for settlement via its processor.

Step 10-

The receiving bank makes the settlement request of the credit card user.

Step 11-

The card issuer makes a settlement payment to the acquiring bank.

Step 12-

The acquiring bank deposits the approved funds into the seller’s nominated account. The account with the acquiring bank is if the seller does their banking with the same or another bank.

What Are The Benefits Of Payment Gateway?

A payment gateway offers numerous benefits, mainly quick payment settlement, the hassle-free flow of transactions and an excellent experience every time.

Security

A secure transaction is a foremost need for any business that collects payment online. Customers must trust the transaction and that their financial information will be a safe online transaction. It should ensure the privacy of the information a buyer inputs. This service should be compliant with PCI standards.

Customer experience

A payment gateway provides unique and smooth processing and payment customization. It is mobile-friendly, secure and convenient, offering consumers a seamless shopping experience.

Worldwide payment acceptance

The payment gateway is supported and accepted globally, making it even more popular worldwide. The payment gateway supports multiple currencies.

Merchant ready

A payment gateway provides the quickest merchant onboarding because online transactions are the primary need today. The processing and setup fees easily fit within the merchant’s budget.

Payment choices

The payment gateway offers and supports numerous payment modes. It can be debit or credit card, net banking, mobile wallets, UPI and others.

The customers can choose the payment mode in which they are most comfortable. You can experience various payment gateway examples when you use eCommerce sites for shopping.

Final Thoughts:

The payment gateway simplifies the life of both the merchant and the customer. A seller can receive payments quicker, more conveniently and with better security. Similarly, a customer can make payments without worrying about online fraud. In the above blog post, we have covered and shared all the valuable information for the business and customers.

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