A payment gateway is the equivalent of a point of sale terminal found in retail stores. It can authorize payments for a myriad of businesses, including online stores and businesses and brick and mortar stores. It is a service that acts as an intermediary between the shopping cart, the merchant, and the financial institutions. This will include the buyer’s credit card issuer and the seller’s acquiring bank. The transfer of information takes place over a secure connection (SSL) and shopping carts are configured to send information in a certain format for a particular gateway.
How Does A Gateway Function?
The payment gateway will transfer information from the payment portal, which can be a website, a mobile phone, or interactive voice response service, to the bank or Front End Processor. Here is an overview of the process:
1. After entering his credit card number information, the customer will click the “Place Order” or similar button on a website.
2. The information will be securely transported from the website to the merchant’s webserver via SSL encryption.
3. The information is then sent securely to the payment gateway.
4. The payment gateway forwards the information to the payment processor that is used by the merchant’s acquiring bank (the bank where he has a merchant account).
5. The payment processor will send the information to the appropriate card company (Visa, Master Card, etc) and at that point will be routed again to the credit card’s issuing bank. The processor acts as the issuing bank for Discover Card and American Express.
6. A response is sent back to the payment gateway as to whether the transaction was declined or accepted.
7. The payment gateway forwards the response to the website. This whole process takes only 2 to 3 seconds.
8. Once all the funds are available, money may be transferred from the merchant account to a business account.
Many of the gateway service providers will offer tools that can detect fraud which includes verifying the delivery address and geographic location of the buyer. They may also calculate the taxes before the request for authorization is sent. Most payment gateways offer an information screen for inputting data.
If you sell products or services online, this is one of the things you need to accept credit card payments. Most service providers include the capability of accepting echecks so the customer has the option of using their checking account.