What Is a Payment Gateway?
A payment gateway is a technology used by merchants to accept debit or credit card purchases from customers. The term includes not only the physical card-reading devices found in brick-and-mortar retail stores but also the payment processing portals found in online stores.
A payment gateway is what keeps the payments ecosystem rolling smoothly, as it enables online payments for consumers and businesses. If you’re an online merchant, you don’t need to be a payment gateway expert, but it’s worth understanding the basics of how an online payment flows from your customer to your bank account.
The key players in online payments
We need to identify the key players in the online payment process:
- The merchant: an online business operating in any, offering a product or service to customers
- The customer: the customer, also called a cardholder, who wants to access the products or services that the merchant is selling, and initiates the transaction
- The issuing bank: is the customer’s bank that issues the cardholder’s credit or debit card on behalf of the card schemes
- The acquirer: also known as the acquiring bank, the acquirer is the financial institution that maintains the merchant’s bank account.
How a payment gateway Works
A payment gateway focuses on securing the sensitive information given by the user throughout the process.
Below you can see the basic steps showing how a typical payment gateway works.
- Step 1: A customer places his or her order and then presses the Submit or Checkout button on the website
- Step 2: the website or the e-commerce platform takes the customer to a payment gateway where he or she enters all the information about the bank or the card they are using to pay. The PG then takes the user directly to the page of the issuing bank or a 3D secure page, asking for the transaction to be authorised.
- Step 3: Once the payment gateway gets the approval for the transaction, the bank then checks whether the customer has sufficient balance in the account to make this transaction a success or not
- Step 4: The payment gateway sends a message to the merchant accordingly. If the reply from the bank is a “No’”, then the merchant subsequently sends an error message to the customer. If the response is a “Yes” from the bank portal, then the merchant seeks the transaction from the bank
- Step 5: The bank settles the money with the payment gateway, which in turn settles the money with the merchant
Once this process is completed, the customer gets a confirmation message of the order being placed.