Payment Gateway
Payment gateway is a web-based service that transmits transaction information between an e-commerce website and the merchant’s processing bank. It is the e-commerce equivalent of the physical point-of-sale (POS) terminal used by brick-and-mortar merchants in card-present transactions. To protect sensitive account information, the data that the gateway collects from the website is SSL-encrypted before transmittal.
The payment gateway integrates with the website’s shopping cart and activates once a customer places an order. The card-not-present transaction process goes through the following stages:
- A customer places an order on an e-commerce website and provides his or her card information for payment.
- The payment information is SSL-encrypted and sent to the merchant’s hosting server.
- The payment gateway then gathers the submitted data and, after another SSL encryption, transmits it to the processing bank’s server.
- The processing bank then sends the payment details to Visa or MasterCard.
- If the cardholder used a Discover or an American Express card, the processing bank serves as an acquiring bank and makes a decision on whether or not to authorize the transaction; then forwards the response to the merchant.
- Visa or MasterCard forward the transaction to the card issuer.
- The card issuer either authorizes or declines the transaction and sends a response (approval or decline) back to the processing bank. The responses for declined transactions provide details for the reason the transaction did not get approved.
- The processing bank then sends the response to the payment gateway.
- The payment gateway sends the response on to the merchant’s website and it is presented to the cardholder.
- The whole process, from submitting the payment information to receiving the response, takes seconds.
- At the end of the business day, all authorized transactions (also called a “batch”) are submitted to the processing bank for settlement.
- The processing bank then deposits the total transaction amount, minus the interchange fees and processing costs, into the designated merchant’s bank account.
- The entire process, from authorization to settlement, takes approximately 2-3 business days.
Processing banks typically provide payment gateways as part of their processing services. They charge a monthly fee for the service ($10 – $25) and may charge a fee for the set up as well. Every major gateway supports the latest fraud prevention solutions, including the Address Verification (AVS) and card security code (CVC 2, CVV2, and CID) validation services.
Payment gateways provide merchants with other ways to process card-not-present payments too. The gateway’s virtual terminal offers merchants the processing capabilities of a POS terminal through an internet browser. It is typically used by direct marketing (mail order and telephone order) merchants to process payments they receive over the phone or in the mail. The customer’s payment information is entered into a web interface and the payment gateway then handles it in the way described above.
Many virtual terminals offer managed billing and customer profile management services. The latter is used to store customers’ payment information on the server hosted by the payment gateway to give merchants a convenient access to it for completing transactions faster. The managed billing solution enables merchants to use the stored customer profiles for setting up recurring and installment billing plans and to process deferred payments automatically.
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May 15th, 2010 at 2:38 am
[...] gateway. Payment gateway is a service that connects a shopping cart with the merchant’s payment processor’s system [...]
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May 22nd, 2010 at 4:57 pm
[...] gateway. Payment gateway is a service that connects a shopping cart with the merchant’s payment processor’s [...]
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May 22nd, 2010 at 6:06 pm
[...] What is a payment gateway? Payment gateway is a web-based service that integrates into an e-commerce website’s shopping cart and collects payment information provided by customers at the check-out. The gateway then encrypts the data and transmits it to the card issuing bank for authorization. The authorization response is then sent to the merchant and is displayed to the cardholder. In essence, the payment gateway serves for web-based merchants the same purpose that a point-of-sale (POS) terminal does for brick-and-mortar businesses. We have previously written in greater detail about the e-commerce authorization process and the gateway’s place in it and you can review the article here. [...]
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May 27th, 2010 at 7:43 pm
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May 28th, 2010 at 6:19 pm
[...] possession of their cards at the time of the transaction. It is a feature that all major e-commerce payment gateways support and your payment processing provider should make it available to [...]
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May 30th, 2010 at 11:41 am
[...] criminals looking for credit card data are an e-commerce website’s shopping cart and the payment gateway that connects it to the merchant’s processing bank’s system. Criminals usually attack [...]
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May 30th, 2010 at 4:39 pm
[...] CVC 2 is a security feature that all major payment gateways and virtual terminals support and your payment processor should make it available to [...]
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May 31st, 2010 at 4:02 pm
[...] which is SSL-secured on the server hosting the merchant’s website. Then the merchant’s payment gateway gathers the transaction information, encrypts it again and sends it to the card issuer for [...]
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June 4th, 2010 at 5:27 pm
[...] websites is also an option, but here the challenges are of a different kind. Technically, your payment gateway can easily be set up to process information between each of your websites and your processing bank. [...]
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June 6th, 2010 at 12:39 pm
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June 7th, 2010 at 9:56 am
[...] Payment gateway fee – specific to the e-commerce industry. Payment gateway is the service that connects an e-commerce website with the merchant’s processing bank and transmits transaction information between them. You will only need it if you want to let customers pay you over the web and it should not cost you more than $15 per month. Some gateway providers may charge you a set-up fee, which varies by provider and gateway, but should not exceed $50. [...]
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June 11th, 2010 at 7:40 pm
[...] a physical possession of their cards at the time of the transaction. It is a feature that all major payment gateways support and your payment processing provider should make it available to [...]
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July 1st, 2010 at 10:24 am
[...] a decline. Today authorization requests are sent out automatically by most POS terminals and payment gateways. Floor limits are typically specified in merchant processing agreements. For card-not-present [...]
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August 9th, 2010 at 8:23 pm
[...] novel, mechanism for processing credit card payments, to do just what a POS terminal or a payment gateway [...]