Understanding Payment Gateways

Understanding the process of online payment systems requires some understanding of how payment gateways work. There is often a lot of confusion about what a payment gateway actually does.

This article is an attempt to hopefully demystify this subject.

When we buy an item in a traditional brick and mortar store and pay with a credit or debit card we are essentially entering into a digital transaction not unlike when you buy something online.  

When you make an online purchase and click the buy now button for example it triggers a series of events that take place behind the scenes. A payment gateway works together with a merchant bank account during the processing of an online payment.

The brief seconds it takes to process a payment actually involves quite a few back and forth digital requests taking place in the background, which the user never sees nor is he ever aware of.

The customer chooses his items and usually places them in the shopping cart.

The shopping cart software is now responsible for tracking the details of this transaction. He enters his credit card information. The data is passed over to the payment gateway.

The payment gateway now receives this information and determines its validity in terms of the information needed to continue. An important fact to remember is that the information being transferred is being encrypted for security using what is known as SSL (Secure Sockets Layer). Next, the processor (gateway) then sends this request to the merchants bank.

That processor then sends that data to the credit card associated with it, (could be visa or mastercard for example) which then in turn directs the request to the card issuing bank.

The bank then checks to see whether there are sufficient funds available for the transaction to proceed. This could be either approval or a decline with a code to determine success or failure and the reason for failure.