How Does A Payment Gateway Work?

We are one lucky bunch who is living in a generation of technology in everything around us. When we say technology we mean the ease of use of all services in our day to day life that has been supported by an electronic factor which helps us to deal it conveniently. Creating huge databases which can be effective and procedures to ensure ease of transactions is the key to this new terminology called Financial technology (Fintech).

Most of us are the users of the technology upliftments in banking, investment, and insurance sectors. For example, most of us have the mobile banking feature which is an easy to adapt facility which helps us in online shopping and also making online cash payments. We choose the items we want to buy and place an order and make payments using our credit or debit card online or the net banking feature online. And then we wait for the products to reach our doorstep. But the process behind the scene is more complicated and unknown to us. This is a sincere approach to make you aware of how any payment gateway will work and cater to your needs.

The mechanism of a payment gateway

Any online payment process follows the following steps to fulfill cash transaction from customer to supplier.

  1. The customer makes a purchase and inputs all his payment information as required on the website.
  2. This data travels to the merchant’s payment processor which works for the company and processes the transaction.
  3. These are then routed to credit card association like visa, master card etc where an interchangeable fee is charged.
  4. Now it is time for the transaction to be approved or denied. Here the card needs to be valid and have enough funds for the transfer.
  5. After a matter of few seconds, the above steps finish. After the transaction becomes authorized, the payment bank redirects the transaction to the parties in the payment process. This travels through a series of authorization like credit card association, payment function and finally to the e-commerce site’s payment gateway
  6. This looks simple but the transfer of funds can be anywhere from 24 to 48 hours.

This completes the entire process of the payment gateway process which most of us have seen as a function of our online purchases.

Why do we need a payment gateway?

In order to have safe and secure cash transactions online, a payment gateway is a must. It has the authorizations and hence there can be no illegal use of our credit cards or banking credentials.


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