What is a Payment Gateway - How Payment Gateways Work?

What is a payment gateway?

A payment gateway is a code or software that allows your business to accept payments… Typically online, payment gateways allow developers to create their own system with code from other processors, likewise offer an easy alternative for anyone to accept credit card payments.

Services such as Shopify, Helcim Commerce, WordPress, etc all require a payment gateway to facilitate the payment and connect with the credit card networks.

Or in other words

The service that automates the payment transaction between the customer and merchant. It is usually a third-party service that process, verify, and accept or decline credit card, debit card and Net banking transactions on behalf of the merchant through secure Internet connections.

Payment gateways fulfill a vital role in the eCommerce transaction process, authorizing the payment between merchant and customer. 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 merchant's web server. The Payment Gateway then sends the transaction data to the payment processor.
• Authorization Request: The payment processor sends the transaction data to a card association. The card's issuing bank views the authorization request and “approves” or “denies.”
• Confirming the Order: The processor then forwards an authorization to the payment gateway. Once the gateway obtains this response, it transmits it. The interpreted and an appropriate response is generated. This process typically takes only a few seconds at most. At this point, the merchant confirms the order.

A simpler way to understand a payment gateway would be: “A virtual gate/mediator that authenticates transactional data to make a payment between the payment portal(web/mobile) and the payment processor(or acquiring bank).”

How Payment Gateways work? 

Take a look at the following Picture

1. When the shopper hits “submit” on the online checkout form on the merchant’s website, that information is sent to the payment gateway provider.
2. The payment gateway then submits the shopper’s information to the appropriate acquiring bank/processor. Just a note that sometimes the charge is submitted to more than one acquiring bank, which is the case with our intelligent payment routing.
3. The charge continues to travel down the ECommerce path from the acquirer/processor until is reaches the issuing bank , who then returns a response to the charge request (we’ll assume that the charge was a success - the issuing bank accepted the charge). This success message travels back up the ECommerce path until it reaches the payment gateway again. The payment gateway relays this message to the merchant. The merchant can then display a confirmation to the shopper, congratulating them on their successful order .
4. To sum everything up, payment gateways play a key role in the following ways. Note that these roles might vary based on the specific payment gateway.
5. Capturing the shopper’s sensitive payment details (as is the case with our Hosted Payment Fields).
6. Connects the merchant to the payment networks, allowing the merchant to accept online payments.
7. Provides the merchant with a merchant account, so they can receive funds from sales and accept online payments.

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