What are payment gateways? How do they work?

A payment gateway is an e-commerce application that enables payments for modern retail and several types of sales by transferring information between payment portals.  It is a wise and an efficient replacement to cash transactions. The benefit of this virtual paying method is that the sensitive information is encrypted. For example, credit or debit card number, pin code, etc. This ensures safe as well as easy exchange of information between the customers and the merchant. Through this, the customers and vendors stay connected to each other as well as their respective banks.

Here is an easy explanation of how payment gateways work:

Let’s take an example of the situation when an online buyer orders food from a food delivery platform and makes an online payment for the same. A few basic steps will be followed to make that transaction possible by the acquiring as well as the issuing bank.

First, as the customer places an order just by clicking on ‘Order Now’, he can easily confirm his order by entering the card details with the help of automatic phone answering service. The next step is the encryption process through Secure Socket Layer (SSL). The customer’s entire personal details or the information to be exchanged with the restaurant’s web server is safely encrypted.

Next, the transaction details are further forwarded to restaurant’s payment gateway, where the encryption process takes place again.

From there, the card details are moved to the payment processor used by the restaurant’s acquiring bank. By acquiring bank, we mean the bank which is going to receive money on behalf of the restaurant’s owner. Then the card details are forwarded to the card association (card holder’s ATM bank).

The credit card issuing bank (customer’s card issuing bank) receives the confirmation request from the acquiring bank and sends a response code back to the processor. It is with the help of the response code that the acceptance or decline of the order placed is assured. Also, a response code is primarily used to define the reason behind the cancellation of a particular transaction. The processor forwards the response to the payment gateway. The payment gateway then forwards it to the website where it is deciphered and an appropriate response is disclosed to the card holder as well as the restaurant.

The one unbelievable factor about this entire process is that it takes only 2-3 seconds to complete.

For additional settlement, the restaurant’s owner can conveniently submit all his authorisations to the acquiring bank with the help of the processor. Then the last step is carried forward by the merchant’s acquiring bank and the total numbers of approved transactions are transferred to the owner’s (merchant) account. This process may take up to two days of time.

Security of the payment process:

Payment processing security is excessively important. Let’s have a look at some of the technical details that takes place with payment gateways to ensure that the payment process is secure.

All transactions carried out through payment gateway are secured with SSL protocol. It helps to encrypt the information, and all other sensitive data is protected. It not only adds value to payment security, but also makes customers more inclined to buy. The SSL portal is always indicated by a padlock icon in the URL bar, and the web address starts with https.

Also, 3D Secure is an extra security covering that helps with fraud avoidance in debit and credit card transactions. In simple terms, when a buyer wants to buy something online, he can create a security password for the card that he uses to make a payment. Thus, all the transaction will be accepted only with the password in order to add extra protection. 3-D Secure guarantees to lessen some of the major problems faced by online merchants, like the fundamental distance between the seller and the buyer, and their inability to effortlessly confirm each other’s identity.

Also, there is an increasing contribution by acquirers, issuers and payment gateways for Virtual Payer Authentication (VPA). Therefore, now you can make all your transactions virtually without fearing theft or spending extra time and energy on cash withdrawals.

 

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