Understanding Payment Gateways: A Comprehensive Overview

A payment gateway is a type of service used by both online and physical retailers to authorize and process payments. Customers and merchants can conduct transactions more easily when a gateway is used as a portal. To transfer the transaction data securely, it makes use of security protocols and encryption. Data is moved back and forth between payment processors, banks, and websites, applications, and mobile devices. A payment gateway is a piece of technology that gets consumer payment data and sends it to the bank that is making the purchase. Through its authorization of the buyer-seller’s financial transfer, it guarantees a safe and effective transaction. To ensure that sensitive data is transmitted securely between the customer and the merchant, payment gateways encrypt data, including credit card numbers. The following transaction types can be completed using payment gateways: Authorization – a type of transaction used to check if a customer has enough funds to pay. It doesn’t include the actual money transfer. Instead, during authorization, a merchant ensures that a cardholder is capable of paying for an ordered item. An authorization transaction is used for orders that take time to ship/manufacture. Capture – the actual processing of a previously authorized payment resulting in funds being sent to the merchant’s account. Sale – a combination of authorization and capture transactions. A cardholder is first authorized. Then funds may or may not be captured. It’s a regular payment for immediate purchases, like a subscription purchase, or e-tickets. Refund – the result of a canceled order for which a merchant will have to apply a refund payment processing to return the money. Void – similar to refund but can be done if funds were not yet captured. Payment Processing Flow It may surprise you to learn that the infrastructure supporting online payment processing is somewhat more intricate. The customer must navigate through a tiny window or a different website to complete the checkout process. However, the buyer can finish the purchase in a matter of seconds since multiple financial institutions, or tools, are involved in the processing, which verifies the transaction data on both sides. A payment gateway must complete multiple activities, each taking three to four seconds, when a customer checks out by providing their card number, expiration date, and CVV. 1-Consumer: In order to provide the transaction data, a consumer clicks the “Purchase” button and completes the required forms. The information is transmitted through an SSL connection and encrypted to the merchant’s web server. 2-Gateway for payments and merchants: Following receipt, the merchant sends the transaction data over a second encrypted SSL channel to the payment gateway. Any data that is kept by a payment gateway is kept in a certain kind of safe storage. Tokens are typically saved by gateways instead of actual credit card numbers. 3- Processor of payments: The payment processors receive the information. These are the businesses that act as third-party participants and offer payment processing services. Payment processors communicate back and forth with payment gateways and merchant accounts via data transfers. At that point, the transaction is being forwarded to a card network (Visa, Mastercard, American Express, etc.) by a payment processor. 4-Discover, American Express, Mastercard, and Visa. Verifying transaction data and forwarding it to the issuer bank—the financial institution that created the cardholder’s credit or debit card—is the responsibility of a card network. 5-Bank that issue: The authorization request is also approved or denied by the issuing bank. The payment processor receives a code from a bank that comprises information about the error or the status of the transaction. 6-Gateway for payments: After being transmitted to the website, the transaction status is returned to the payment gateway. 7-Both the issuing bank and the customer. Through an interface with the payment system, a consumer receives a notification indicating whether the transaction was approved or rejected.

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