What Is A Payment Gateway? An Introduction

If you’re a merchant and client of Vision Payment Solutions already, you likely know what a payment gateway is, how it works, and what it means to merchants all over the world. But, for those of you who are new to the idea of a payment gateway, this brief but informative introduction is designed to assist you in understanding the world of credit card payment processing.

Fundamentally, a payment gateway is an e-commerce service that authorizes payments for all kinds of businesses, whether they are e-businesses, online retailers, or traditional, brick-and-mortar stores. It is just like a physical point-of-sale terminal, as one would find in most retail outlets. Payment gateways protect sensitive credit card data via special encryption, such as credit card numbers, to ensure that information is transmitted safely from the customer to the merchant, and from the merchant to the payment processor.

Typically, a payment gateway transfers information between a payment portal and an acquiring bank. When your customers order a product from a payment gateway-enabled merchant, like Vision Payment Solutions’ many clients, for instance, the payment gateway performs a variety of tasks to process the transaction. Let’s look more closely at an online example:

1.     A customer places order on website, and enters his card information into the system.
2.     The customer’s browser encrypts the information to be sent to the merchant’s server, via SSL (Secure Socket Layer) encryption.
3.     The merchant forwards that data to their payment gateway, through another SSL-encrypted connection to the payment server.
4.     The payment gateway forwards the transaction information to the payment processor used by the merchant’s acquiring bank.
5.     The payment processor forwards the transaction information to the card association, whether it’s American Express, Visa, Discover, or another.
6.     The credit card-issuing bank receives the authorization request and sends a response back to the processor with a response code. The response code then tells whether the payment is approved or declined.
7.     The processor sends the response to the payment gateway.
8.     The payment gateway receives the response, and forwards it to the retail website, then relayed back to the cardholder and the merchant.
9.     The merchant submits their approved authorizations, in what’s known as a batch, to their acquiring bank for settlement.
10.  The bank then deposits the specified funds in to the merchant’s account, whether it is an account with the same bank or a different one.

The transaction processing takes approximately two to three seconds, but the actual deposit of funds may take up to three days, depending on several factors. Additionally, many payment gateways offer methods for filtering fraudulent orders, and calculate tax in real time prior to the authorization request being sent to the processor.