How payment gateways work
A payment gateway facilitates the transfer of information between a payment portal (such as a website or IVR service) and the Front End Processor or acquiring bank, quickly and securely.
When a customer orders a product from a Payment Gateway enabled merchant, the payment gateway performs a variety of tasks to process the transaction, completely invisible to the customer. For example:
- A customer places order on website by pressing the 'submit order' or equivalent button, or perhaps they enter their card details on an IVR service.
- If the order is via a website, the customer's web browser encrypts the information sent between their browser and the merchant's webserver. This is usually done via SSL (Secure Socket Layer) encryption.
- The merchant then forwards the transaction details through to their payment gateway who hold the details of their merchant account. This is often another SSL encrypted connection to the payment server hosted by the payment gateway.
- The payment gateway who receives the transaction information from the merchant then forwards the information to the merchants acquiring bank.
- The acquiring bank then forward the transaction information to the issuing bank (the bank that issued the credit card to the customer) for authorization.
- The card issuing bank receives the authorization request, and sends a response back to the payment gateway (via the acquiring bank) with a response code. In addition to determining the fate of the payment, (i.e Approved or Declined) the response code is used to define the reason why the transaction failed (such as insufficient funds, or bank link not available).
- The payment gateway receives the response, and forwards it on to the website (or whatever interface was used to process the payment), where it is interpreted and a relevant response then relayed back to the customer.
- The entire process typically takes 3-4 seconds
- At the end of the bank day (or settlement period) the acquiring bank deposits the total of the approved funds in to the Merchants nominated account. This could be an account with the acquiring bank if the merchant does their banking with the same bank, or a scrape account with another bank.
- Network Merchant