А payment gateway is the technology that transfers payment data from the sender to the receiver. A payment gateway plays a critical role in the efficient functioning of the payments ecosystem as it provides an interface for online payments for consumers and businesses. Instant payment gateways have made life easier for small business owners as they can now take their products online and receive hassle-free payments from different locations.
If you are a business owner who wants to take his or her business online or if you are trying to make your e-commerce store more efficient, then it will be very helpful to know how payment gateways work. Even for physical store owners, who use GPRS POS machine or Android POS terminal, payment gateways provide the perfect solution for their business. In this article, we will discuss how payment gateways work. Let us first have a look at what are the key players in online payment.
The key players in an online payment
This is very important to understand as this will help in understanding how the instant payment gateways work.
The merchant: this is an online business that offers a product or service to customers
The customer: The one who wants to access the products or services that the merchant is selling and hence initiates the transaction
The issuing bank: It is the customer’s bank or financial institution that enables the payment from the customer’s end
The acquirer: the acquirer is the financial institution that maintains the merchant’s bank account. It
How does a payment gateway work?
Now that we know what are the parties involved in a payment and the need for a payment gateway, let us now discuss in detail how a payment gateway works.
The first phase of the payment starts when the customer finalizes on a product and proceeds to make an online payment for the product. The payment page has the payment gateway embedded on it. Most of the gateways offer different options. Some of the options available are:
Hosted payment page
This is a separately hosted gateway and the payments page redirects the customers to a payment gateway when they are ready to checkout. The instant payment gateway then securely makes the transaction by sending the data to the acquirer. This is the most preferred option as it reduces the burden on your server.
Server-to-server integration
This enables direct communication of the merchant’s server with the payment gateway’s server. A direct transaction can be initiated on the payment page itself without redirecting the customer to some other page. This results in faster checkout and increases the conversion rate for an e-commerce website. However, this is only suitable if you want to collect data related to the customers.
Client-side encryption
- This service encrypts sensitive data on the client-side device before sending it to the merchant’s server. In short, it enables you to accept payments on your website while encrypting card data in your browser. This is made possible by using the payment gateway’s encryption library.
2. Once the customer has landed on the payment page, he enters their credit or debit card details. This information is then securely passed to the payment gateway based on the type of integration you are using.
3. The payment gateway then encrypts the customer’s details and runs a fraud check before the data is sent to the acquiring bank.
4. The acquiring bank then sends the relevant information to the issuing bank.
5. The issuing bank then performs another fraud check.
6. The issuing bank then approves the payment. The payment approval or denial message is then sent to the acquiring bank.
7. The acquiring bank then sends the same message back to the payment gateway which is then relayed to the merchant.
8. The merchant then finally confirms the payment on its payment page and then closes the entire transaction.
Conclusion
The entire operation of an instant payment gateway gets completed within seconds. This is a huge improvement over a GPRS POS terminal or an Android POS terminal. The entire operation is very secure as the entire data is encrypted and there are multiple layers of fraud check put in place before the transaction is confirmed by both parties.