A payment gateway is a merchant service provided by an e-commerce application service provider that authorizes credit card or direct payments processing for e-businesses, online retailers, bricks and clicks, or traditional brick and mortar. A payment gateway facilitates a payment transaction by the transfer of information between a payment portal (such as a website, mobile phone or interactive voice response service) and the front end processor or acquiring bank.
When a customer orders a product from a payment gateway-enabled merchant, the payment gateway performs a variety of tasks to process the transaction.
- A customer places order on website by pressing the 'Submit Order' or equivalent button, or perhaps enters their card details using an automatic phone answering service.
- If the order is via a website, the customer's web browser encrypts the information to be sent between the browser and the merchant's webserver. In between other methods, this may be done via SSL (Secure Socket Layer) encryption. The payment gateway may allow transaction data to be sent directly from the customer's browser to the gateway, bypassing the merchant's systems. This reduces the merchant's Payment Card Industry Data Security Standard (PCI DSS) compliance obligations without redirecting the customer away from the website.
- The processor forwards the authorization response to the payment gateway
- The payment gateway receives the response, and forwards it on to the website (or whatever interface was used to process the payment) where it is interpreted as a relevant response then relayed back to the merchant and cardholder.
- The entire process typically takes 2â€“3 seconds.
- The merchant then fulfills the order and the above process can be repeated but this time to "Clear" the authorization by consummating the transaction. Typically, the "Clear" is initiated only after the merchant has fulfilled the transaction (I.e.: shipped the order). This results in the issuing bank 'clearing' the 'auth' (i.e.: moves auth-hold to a debit) and prepares them to settle with the merchant acquiring bank.