Working of Payment Gateway
When you actually make a payment online, the whole process of making a payment seems very simple. But the processes that run behind the system are actually very complex and contain series of steps. Here is a simplified way to understand how a payment gateway works:
Payment Gateway Process
- The customer selects a particular product or service and clicks on the pay button.
- The Secure Socket Layer (SSL) of the internet browser which is used by the customer encrypts all the information being sent by the user.
- The business website takes the information sent out by user and forwards all the details to the payment gateway. In some cases, the payment gateway may be hosted separately. Encryption of data takes place in all the communication whenever information is sent from one party to another.
- The payment gateway after receiving the information sends all the details to the concerned bank for further checking of the details.
- The bank, on receiving data, sends the request to the card association. If suppose, American Express is used, then the card association is the same as the bank. If the card used has a MasterCard or Visa logo, which is most often the case these days, additional steps are required.
- When MasterCard or Visa is used, the card association forwards the information that the user entered about the card to the bank that originally issued the card. This bank is the customer’s bank.
- The customer’s bank checks the required details of the card and other issues like the availability of sufficient funds so that whole transaction could be carried out.
- After verification, the issuing bank gives an authorization code to the payment processor card association. The authorization code tells the payment processor card association to allow or to decline the payment process. The code is designed in a way so as to tell the reason for decline, if there is any to the payment processor.
- The payment gateway card association sends the authorization code that it receives to the payment gateway.
- The payment gateway then finally sends the code to the business. If everything is fine, the sale is confirmed to the user and the money from user’s bank account is put on hold. If the transaction declines then the final sale is terminated and an appropriate message is displayed to the user.
- The money which is put on hold is then transferred from the user’s account to the bank where the business has its merchant account.
- There is a process of settlement funding where the business’s bank takes the approved funds and puts them into the proper account. For the whole process, it usually takes around three days from the time of purchase for a business to actually receive usable funds.