What Are Payment Gateways?

What Are Payment Gateways?

A payment gateway is a method for processing electronic or online transactions. Payment gateways provide the resources a merchant requires to process payments. But how does a payment gateway work? What are some basic features of a payment gateway?

If your business is seeking to benefit from ecommerce operations, you’ll need a payment gateway, which facilitates electronic transactions. Some essential components of such a gateway include some sort of software application designed especially for ecommerce (despite the fact that is can process brick-and-mortar payments as well), encryption of payment data, communication among all involved parties, and of course, the authorization of payments.

Payment gateways transmit and receive information online, so an Internet connection is needed, but such processing is far faster and easier than traditional phone-line processing.

In a typical transaction involving a payment gateway, a customer makes a purchase (either online or in store), the business site transmits the customer’s encrypted information to the payment gateway, which then relays the data to the merchant’s bank. The bank then requests the transaction from the card association, which, after communicating with the customer’s bank, assesses whether the customer has the necessary funds. If so, the issuing bank then transmits an authorization code, approving the transaction. The payment processor additionally transmits this code to the payment gateway, which is then relayed to the business, holding the money in the customer’s account until the transaction is finalized.