“Payment gateway transaction” is a fancy term for a fairly simple concept. Assuming you did a lot of holiday shopping at a physical store this year, you probably used a “point of sale terminal.” It’s that little machine at the checkout counter where you, or the cashier, swipe the credit card. It’s very secure. An online payment gateway is basically the same thing as a point of sale terminal, but it’s what you use for e-commerce. With the Web Payment Software payment gateway, you get to accept credit cards and e-checks. But how does it all work?
First, a customer will submit their online order. Once they press that submit button, their info gets sent to you, the merchant’s, web server. It’s sent through a secure-socket-layer (SSL) encryption. Websites are SSL-Secured if you see that little lock next to URL at the top of the web browser.
Payment Gateway to the Processing Stage
Once you receive the info, you send it to the payment gateway. Again, this is SSL-Secured. The payment gateway will then take that transaction to the payment processor. This is (most of the time) the third party company appointed to handle credit card transactions. They check for anti-fraud, the card’s country of issue, etc. These are security measures that take just a few seconds. From there, the transaction info is sent to the credit card company that is being used.
Credit Card Companies
If a customer used Discover or AmEx, the processor will act as an “issuing bank.” Issuing banks gave the customer their credit card in the first place. It’s also the same bank that pays the acquiring bank — and the acquiring bank pays you! In the case of Discover or AmEx, the processor will directly approve or decline the transaction. If the customer used a Visa or MasterCard, those companies send the info to an issuing bank. The issuing bank will either approve the transaction, or decline it and provide a reason, such as having insufficient funds.
Processing Back to the Payment Gateway
The processor then takes the response, and then forwards it to the payment gateway. The payment gateway takes the response and turns it into a legible explanation for both the merchant and customer to view on the computer screen. As you probably know, the entire process is extremely quick — a matter of seconds. At this point, the merchant knows if the order is cleared to ship.
At the end of the business day, merchants submit their approved authorizations to the acquiring bank. The acquiring bank deposits the money you’ve earned into your account a few days later. And there you have it!
To summarize, the whole process looks like this: