What is Payment Gateway? How Payment Gateway Works

Want to know What is payment gateway and How it works? This is the right place for you.

Sometime or Other we are most familiar with Online Transactions even by Buying things online. Let it be any. Due to customer ease, Most of the Online sellers embed COD(Cash On Delivery)in Their Systems. Often we came across some deals where we need to pay the amount right away to get it at some low price and similar. Do you ever wonder about paying some company by having some popcorn at your home? This Whole article revolves around the payment gateway which plays the main role in accepting payments online for any business. One can use this info for knowledge and business purpose as well. Let’s Dive in.

What is payment gateway?

Payment Gateway is a service(Call it as Front-end Technology)which verifies and accepts card payments online and Offline.

In Simple, A payment Gateway passes your card information to merchant and from merchant to your Bank to finalize the payment. All The process will be done in a secure manner.

After all the above process, it will display you whether the bank accepts the payment or not and finally settles the transaction.

Do Remember, There is a lot of stuff ahead which might confuse you. The work of payment gateway is to just accept or decline the payment.

What is a Merchant Account?

It’s a bank account. Nothing Else but with some extra features than regular accounts. Most of us are confused between the merchant account and payment gateway which actually are different from each other. To Take payments one need both gateway and merchant account.

A merchant account is a bank account which accepts payments in multiple ways. In simple it acts as an agreement between the accepter and merchant acquiring banks for settling the transactions.

How Does payment Gateways work?

Hope this will be the more simple process one can explain regarding the work behind payment gateways. It involves four steps.

Collection: Whatever the online or offline business, you need to enter card details to make a transaction. The card information is securely collected by that particularly integrated payment gateway of that business.

Authentication: The collected information is shared with the Payment processor and the processor shares the information with the bank group i.e Visa, Master card and then it was sent to the related bank account for verification purpose in a secure way.

Auth or Authorization: Here, Bank approves the details and the payment will be confirmed and sends details to the same payment processor along with a response code(Say Approved or declined or insufficient funds). Now one can deliver goods and services for your payment.

Settle: The complete transaction is verified by the bank and is finally settled by showing a receipt.

Below image shows the Credit card transaction flow which is almost similar to payment gateway process.

How payment gateway works

How to choose a payment gateway?

Most Likely, Merchants can look after their Gateways with the recommendation from their merchant’s banks. Popular banks automatically suggest a gateway to their merchants and however one can choose a gateway as per their needs. There are a number of Gateways in the market and choosing one among them which works for you is a tricky thing. It requires some more knowledge about the Merchant banks and transactions related to it.

I would like to close the article with some questions for selecting a payment gateway,

  • Question yourself about the exact purpose of using it in your business as it differs from each business.
  • Which payments are you going to accept? International, national or local?
  • Know thoroughly about the rates and fee of the so-called accounts.
  • what is the limit of your investment on payment gateways?
  • Is the selected gateway completely secured?
  • How soon do you want to receive money for your sales?

And many more. I simply can’t the popular questions. There is much more information you needed to kick-start an online business. However hope I had covered the very basics regarding the payment gateway and one final tip, Don’t jump upon online business with half knowledge.

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