Tuesday, June 5, 2012

What Everyone Needs to Know about Payment Gateways

What Everyone Needs to Know about Payment GatewaysA bunch of inquiries coming constantly into our company's email boxes and inquiry forms over the past few months that convinced me that I need to offer a refresher course on the very basics of payment gateways. This article will explain to you what gateways are and what they do and will review the payment process.

Payment Gateway Basic Details

Payment gateway is a web tool that is used to transmit payment data from a commercial website to a acquiring bank. So gateways are the internet equivalent of the physical point-of-sale (POS) terminal that is used by physical merchants in face-to-face transaction processing settings. The sales data are encrypted to ensure that the account data are transmitted in a secure way.

Payment Gateway Payment Process

Payment gateways are set up by connecting the website's shopping cart (you need to build a shopping cart before applying) with the processor's back-end system. The payment process goes as follows:
  1. A consumer places a sales order on your e-commerce website and submits his or her payment card account details.
  2. The transaction details (credit card, amount, etc.) are encrypted by a service called secure socket layer (SSL) and sent on to the retailer's server.
  3. The payment gateway at this point gathers the transaction information and, after another SSL encryption process, routes it on to the merchant account back-end server.
  4. The credit card processing bank at this point routes the payment data on to Visa or MasterCard.
  5. If the customer has used a Discover or an American Express card, the process is slightly different, as in this case the issuer is also the acquiring bank. So Discover and AmEx make a decision on whether or not to approve or decline an authorization of the transaction and then send their response back to the retailer.
  6. (Visa or MasterCard routes the payment information to the card issuer.
  7. The issuer now either approves authorization of the payment or declines it and sends its response via a code back to the acquirer. The responses for declined payments also provide details for the reason it did not get authorized.
  8. The acquirer now sends the response code (again using the payment gateway) to the website and it is shown in the visitor's browser.
The payment process may look complicated, however in its entirety, from providing the payment information to receiving the response code, takes just a few seconds.

The retailer now completes the service or delivers the merchandise and then deposits the payment amount. You should never settle transactions prior to the shipping the merchandise. The reason is that, if the consumer notices the transaction amount on his statement or activity log (now accessible on the web in practically real time), before receiving the item, there is a good chance that the sale will be disputed and lead to a chargeback.

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