A payment gateway is a service that is provided to online retailers and other businesses which use ecommerce. Credit card information and details between the customer, the merchant and the processor is protected by payment gateways. If credit card numbers are not protected, other users can use them to buy goods and services illegally. The merchant/cashier keys in the credit card number and the payment is processed by the merchant bank directly or through a third party payment processor. The gateway also can be connected to a shopping cart by use of API software application which allows real-time transactions to be processed within seconds.
The payment gateway is not the same as a merchant account although some merchant accounts incorporate gateway so it can serve as both. For others the gateway and the merchant account are operated by two different providers. Payment gateway processes credit cards, debit cards and electronic checks. The customer who is the cardholder shops online or using a smart phone by clicking 'order', 'buy' or 'shopping cart' and enters the credit card details on the space provided on the website check-out point. When the cardholder presses the submit button the information is automatically encrypted by the cardholders browser. The information is sent to the payment gateway which decrypts some of the details and then re-encrypts it so that the credit card details will not be accessed by unauthorized readers.
These details have to be protected from fraud and the system ensures that the details are safe and secure by installing in-built fraud prevention software. The payment gateway sends the details to the merchant bank. The merchant bank sends the details to the credit card issuing bank which will relay the authorization information back to the merchant bank using the same route. When the information reaches the gateway, it is decrypted as it reaches the merchant. The merchant may hold an account in the same bank as the customer or in a different bank. If everything is okay and there are enough funds payment is sent to the merchant account within a day to 3 days at most. The card processor, card issuing bank and payment gateway deduct their fees and send the net amount to the merchant account. Verifying and authorization are real-time transactions and they are done within seconds as the cardholder waits.
If the payment is not authorized because of lack of funds or account has not been accessible, the information will be sent by the issuer of the credit card to payment gateway who sends it to the acquirer and then it is relayed to the merchant using coded language to convey the message. The gateway is an important service which cannot be overlooked. It is provided by third parties but it is also offered by some merchant banks. The purpose of the gateway is to relay communication between the merchant and the card issuing banks, and obtain payment for the merchant while using safe and secure encrypted language and information coding.