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.
In the context of online transactions, a payment gateway is the service that authorizes and processes payments for online retailers in a secure way. It represents a technical bridge between the customer’s bank and the merchant’s bank. When a customer places an order from an online store, the payment gateway performs several tasks to finalize the transaction:
- Encryption: The web browser encrypts the data to be sent between it and the vendor’s web server. This is done via SSL (Secure Socket Layer) encryption.
- Merchant Server: The gateway sends the transaction data to the payment processor utilized by the vendor’s acquiring bank.
- Processing: The payment processor sends the transaction data to the card association (e.g., Visa/MasterCard), which routes it to the issuing bank for authorization.
- Authorization: The issuing bank receives the authorization request and sends a response back to the processor with a response code. This response code serves to approve or decline the transaction, and it gets passed back to the payment gateway.
- Order Fulfillment: The payment gateway receives the response and forwards it onto the website (or whatever interface was used to process the payment) where it is interpreted and a relevant response then relayed back to the cardholder and the merchant. This process is called authorization.
- Settlement: At the end of the day, the approved authorizations are sent in a batch to be settled and the funds get transferred from the issuing banks to the merchant bank. This process is called settlement, and marks the end of the card transaction.
Some of the popular payment gateway providers include PayPal, Stripe, Square, and Authorize.net. Payment gateways make online transactions easy, efficient, and secure, ensuring trust for both merchants and customers.
