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Payment Gateway

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Payment Gateway

Payment Gateway, which is an e-commerce application service provider that provides official permission for making credit card payments for e-commerce businesses, online retailers, bricks and clicks or traditional brick and mortar. It helps in transferring the details between a payment portal and the Front End processor or acquiring bank.

When a consumer orders a product from the online retailer who has payment gateway, it undergoes several processes to complete the transaction.

Here comes as follows:

  • 1. The consumer placed their order by choosing ’Submit order’ or some other identical button or by entering the details of the card using an automatic phone answering service.
  • 2. If the order is placed through the website, the consumer’s web browser converts the details in to code and send it to the merchant’s web-server. It can be done with the help Secure Socket Layer (SSL) encryption. Payment gateway may let the data to be sent from the consumer’s browser to the gateway, bypassing the merchant’s systems, which reduces PCI DSS compliance obligations that does not redirect the consumer away from the web page.
  • 3. After that, the merchant forwards the transaction data to its payment gateway, which is SSL encrypted connection to the payment server by the payment gateway. Then it transfers the details to the payment processor used by the acquiring bank.
  • 4. The payment processor transfers the details to the card association (Visa/MasterCard/American Express). If it is an American Express or Discover Card, then it acts as both card association and issuing bank and give a direct reply of approved or declined to the payment gateway. If it is a MasterCard or Visa card, the card association routes the transaction to the correct card issuing bank.
  • 5. The issuing bank gets the authorization request and credit or debit checks and sends a reply back with a response code (approved/denied) to the processor. The response code is used to define the reason why the transaction failed. The credit card issuer holds an authorization associated with that merchant and consumer for the approved amount, which impacts on the ability of the consumer to spend further.
  • 6. The processor transfers the authorization response to the payment gateway and then forwards it on the website (through which the payment was processed), where it is interpreted as a relevant response then replayed back to the merchant and cardholder. This process is named as Authorization or “Auth”. Actually, this whole process takes 3 to 5 seconds.
  • 7. Then, merchant fulfils the order and repeats the above process to “Clear” the authorization by consummating the transaction. “Clear” is started only after fulfilling the transaction (shipping the order). Then the issuing bank ‘clearing’ the ‘auth’ and prepares them to settle with the merchant acquiring bank.
  • 8. The merchant submits all their approved authorizations in a batch to their acquiring bank for settlement through their processor. The bank makes the batch settlement request of the credit card issuer, which then makes a settlement payment to the acquiring bank.
  • 9. Then the acquiring bank deposits the total of the approved funds in the nominated account of the merchant, which could be same as the acquiring bank or an account with another bank. The whole process from authorization to settlement to funding takes three days.

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