A payment gateway is an online payments’ service that, when integrated with the e-commerce platform, is devised as the channel to make and receive payments. The procedure to receive payments includes the customer requiring to fill in some details, like credit/debit card number, expiry date and CVV. Post this, the customer proceeds to make payment, which then, gets transferred from buyer’s account to the seller’s (merchant’s) account.
Payment Gateway is a secure platform for making clients’ online payments’ path uniform and simplified for every transaction. A payment gateway should offer numerous benefits, namely, quick settlement of payments, hassle-free flow of transactions, and a superb overall experience every time. It helps the e-commerce platform aggravate its existence with ease of payments to offer to its customers. Besides, it also leads to the e-commerce platform gaining rapport for leading to not only quick and secure payments, but also convenience and success with the same every time. A payment gateway service can be provided by banks directly or a payment service provider authorized by a bank.
Functioning of a payment gateway:
Straight away coming to the functioning of a payment gateway, it follows a procedure for settling the payment every time. This happens when a customer places the order for a service/product from a payment gateway-enabled merchant. From filling in the card details to payment finally flowing into the merchant’s account and settling, the payment gateway passes through a variety of steps-
- After the customer places the order online, and proceeds to make payment for the same, he/she needs to enter credit/debit card details.
- The card details are encrypted in a secure way with Secure Socket Layer (SSL) encryption to be sent between the browser and the merchant’s web server. A payment gateway eliminates the merchant’s Payment Card Industry Data Security Standard (PCI DSS) compliance obligations without redirecting customer away from the website.
- After this, the merchant forwards transaction details to their payment gateway, which is also SSL encrypted connection to the payment server hosted by the payment gateway.
- The payment gateway converts the message from XML to ISO 8583 or a variant message format (format understood by EFT Switches) and then forwards the transaction information to the payment processor used by the merchant’s acquiring bank.
- The payment processor forwards the transaction information to the card association (I.e.: Visa/MasterCard/American Express).
- Next, the credit card issuing bank receives the authorization request, verifies the credit or debit available and then sends a response back to the processor (via the process same as for the authorization) with a response code (i.e., approved or denied). The response code also also helps to communicate the reason for the case of failed transaction, for example, insufficient funds, and so on.
- The processor then, forwards the authorization response to the payment gateway, and the payment gateway receives the response and forwards it onto the interface used to process the payment. This process is termed as Authorization or “Auth”. This entirely takes around 2-3 seconds in general.
- The merchant then fulfills the order and the above process can be repeated but this time to “Clear” the authorization by consummating the transaction. Typically, the “Clear” is initiated only after the merchant has fulfilled the transaction (I.e. shipped the order). This results in the issuing bank ‘clearing’ the ‘auth’ (I.e. moves auth-hold to a debit) and prepares them to settle with the merchant acquiring bank.
- The merchant submits all their approved authorizations, in a “batch” (end of the day), to their acquiring bank for settlement via its processor. This typically reduces or “Clears” the corresponding “Auth” if it has not been explicitly “Cleared.”
- The acquiring bank makes the batch settlement request of the credit card issuer.
- The credit card issuer makes a settlement payment to the acquiring bank (the next day in most cases).
- The acquiring bank subsequently deposits the total of the approved funds into the merchant’s nominated account (the same day or next day). This could be an account with the acquiring bank if the merchant does their banking with the same bank, or an account with another bank.
Although, skipping the technical details below is the simple list that you may go through, which reflects the broad steps to portray the successful functioning of a 3-D secure payment gateway:
What an individual sees as a few seconds’ process is, in actual, a process with all the aforementioned steps required. Each step is necessary in making sure that a safe, smooth and quick transaction flow happens every time a customer makes payment for goods/services purchased.