What is a payment gateway? Definition and how it works www.deekpay.com

What is a payment gateway

Payment Gatewayis an online service that allows businesses and individuals to accept payments from customers through their websites or mobile apps. It acts as an intermediary between the merchant and the financial institution processing the payment.

Payment gateways include not only physical card-reading devices or point-of-sale terminals used in traditional brick-and-mortar shops, but also payment processing terminals integrated into online shops.

In short, a payment gateway is a technology used by merchants to accept electronic payments (e.g., credit or debit cards) from online shoppers for the purchase of products or services.

Key Features of Payment Gateways

Firstly, payment gateways ensure the secure transmission of any payment data. Payment gateways also provide data protection encryption, integration with various payment methods and real-time processing of transactions.

Essentially, a payment gateway acts as a secure bridge between merchants and customers in order to seamlessly complete financial transactions. It allows for the secure transfer of funds from the customer's bank account to the merchant's account.

Framework of the payment gateway

The framework of a payment gateway can be based on the fact that it is used toonline paymentThe portal is also divided into two parts for the shop premises.

Online payments need to be hosted on the website through a third-party service provider or by the merchant through an Application Programming Interface (API), which will enable the website to work with the payment processing network and ultimately receive a response from the issuing bank .

The payment gateway will be utilised by in-store venues through physical card reading devices or POS terminals connected to the processing network using a secure internet connection.

Participants in the payment gateway ecosystem

merchant or seller

A merchant is a business or individual who sells goods or services online.

To accept online payments, merchants need a merchant account, which is a type of bank account that allows them to receive funds from online transactions. This account integrates with the payment gateway to securely process transactions. In other words, the merchant account is where all the funds come in after settlement.

our customers

Customers constitute the majority of participants in the payment gateway ecosystem. They make online payments for goods and services through various means such as debit or credit cards, internet banking, UPI or online wallets.

Acquirers and issuers

Two different types of banks operate in the payment gateway ecosystem.

As the name suggests, the acquiring bank collects payments on behalf of the merchant. This means that the merchant account is located at the acquiring bank. This is the destination of the financial transaction that is routed through the payment gateway. In other words, this is where the money ends up.

On the other hand, the issuing bank is the place where the transaction is initiated. The account belongs to the customer who pays for the product. The issuing bank represents the customer and supports various payment methods, such as credit cards, debit cards or Internet banking.

Payment Gateway

The payment gateway acts as an intermediary between the merchant's website or application and the acquirer and issuer.

When a customer makes a purchase on a merchant's website, the payment is made through a payment gateway. It helps in the secure transmission of payment information as well as the authorisation and settlement of transactions.

Payment Processor

The payment processor manages the technical connection between the payment gateway, the acquiring bank and the issuing bank. It securely validates and routes payment transactions. Payment gateways and payment processors are essential components for processing online payment transactions.

How Payment Gateways Work

Payment gateway specific work process.

Step 1: Add a payment gateway

After setting up your online shop, the first step is to add a payment gateway. Integrating a payment gateway with an online shop ensures that all transactions are conducted safely and securely. In this way, all parties in the transaction, i.e. the merchant and the customer, have complete information about the process.

Adding a payment gateway to a website or mobile application involves choosing the right payment gateway service provider and incorporating the technology into the website's checkout process. It can be customised by the merchant to allow any number of payment methods that the merchant wants to accept.

API Integration: This allows for maximum customisation and is ideal for businesses with bespoke websites or applications. Plugin Integration: this is ideal if you use platforms such as WordPress, Shopify, WooCommerce, Wix, etc. SDK integration: this allows developers to create their own version of the payment gateway for their mobile app or website. Step 2: Customer Purchase

With a payment gateway, the buying process is safer and simpler.

Customers pick their favourite products and click to buy. They are asked to select the payment method of their choice and then enter the payment details. For example, if they choose debit or credit card, they are asked for their card number, cardholder name, expiry date and CVV.

Step 3: Website/application directs customers to payment gateway

For the client, this may be the most important step in the process.

When a customer decides to make a purchase, they are navigated to the payment page to complete the transaction. They enter payment information on the payment gateway page, such as card details or UPI ID.

The payment gateway securely encrypts the card details, performs fraud checks and transmits the transaction details to the acquiring bank. The acquiring bank sends the information to the card provider (e.g. Visa, Mastercard or Rupay) and then to the issuing bank for authorisation.

One of the most important functions performed by the Payment Gateway is automated fraud checking. This is an integral part of the process, using methods such as IP geolocation, pattern recognition and speed checking to validate the payment details entered by the customer. Some platforms also offer advanced fraud detection methods such as machine learning and artificial intelligence.

Step 4: Authorisation and bank response

Once the acquiring bank receives the transaction details, it validates several parameters to ensure the authenticity of the transaction. Some examples include the identity of the customer and his bank details. In some cases, especially where the amount is large, the customer's spending pattern may also be considered.

Once the payment gateway receives a response from the issuing bank, it informs the acquiring bank whether the transaction is approved or declined.

The merchant then redirects the customer to share the final status of the transaction. If the payment is approved, the customer will see a payment confirmation message with details of the order. If the payment fails, they will be asked to retry the payment using a different method.

This step occurs in the background and only the results of this step are displayed on the website.

Step 5: Settlement

Once the payment is approved, the acquiring bank initiates the settlement process. The payment gateway receives funds from the customer's issuing bank and then settles the payment with the merchant, usually within a few business days.

Once this process is complete, the customer receives a confirmation message that the order has been placed.

Payment Gateways and Payment Processors

A payment gateway works differently than a payment processor, which is a service that routes customer credit card information between the customer's bank and a commercial bank and enables the movement of funds.

The payment gateway collects payment details such as credit card information and authorises payment through different payment methods, while the payment processor contacts the customer's bank and the merchant account of the acquiring bank. The payment processor acts as a communication intermediary.

Payment gateway security features

Tokenisation: In card tokenisation, card details such as card numbers and expiry data are not transmitted directly through the system. Instead, they are first converted into tokens so that in the event of a data breach, the information is not compromised. Fraud prevention: The payment gateway uses a range of advanced fraud detection tools to analyse transaction patterns and behaviour in real time. This means that even if fraudulent behaviour exists, the system is able to identify and prevent it. PCI DSS Wallets: These wallets are PCI DSS compliant to ensure secure storage of cardholder data for any recurring transactions. White Label Wallets: This feature is ideal for mobile wallets. Most of the payment gateways offer white label integration for any payment method through mobile wallets. This ensures secure transactions and makes them more convenient. 3DS Authentication: 3DS or 3D Secure means there is an extra layer of security before the transaction is completed. Typically this is done by sending an OTP to the customer's mobile phone or email.

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