What Is A Payment Gateway & How It Works

What Is A Payment Gateway & How It Works

Payment gateways in India are, generally, provided by banks. They act as a trusted intermediary between the merchant and the bank… This ensures a more streamlined payment experience for end customers. This can also be a one-stop solution for all payment-related requirements of eCommerce merchants. The online business can also sign up for mobile bill payments and cash card services provided by these gateways - thus reducing their working capital needs and providing them with more flexibility.


Payments and money transfer systems are a cornerstone of transactions in the online world. However, most systems lack the capability to make payments through secure channels without involving traditional third-party intermediaries. They are slow, obsolete, and not scalable for an online marketplace.


Firstly, there are two software entities involved in such a transaction: the merchant and the payment gateway. The merchant is the owner of the website where the product is being sold. For example, when you buy an iPhone from Flipkart, then Flipkart is your merchant and they (or one of the companies they deal with) are responsible for developing and maintaining their website, taking payments from customers, etc. The online payment gateway on the other hand provides a mechanism that enables interoperability between the software development environment of a merchant and various payment systems (like visa, master card, net banking, etc.)


The payment gateway works under the 3D secure authentication protocol, which has 3 components. 3D secure is an XML-based protocol designed by Visa and MasterCard aimed to enhance the security of electronic commerce.


The issuing domain is where banks issue credit cards to cardholders. It’s a place where issuers operate. They issue cards, which are used to make online purchases via credit card services. The issuers deploy a server called Access Control Server (ACS), which provides them with 3-D secure messaging, authentication services, and much more.


The online Payment Gateway is responsible for processing transactions that are sent to the gateway for processing. This can be done by either defining a set of sub-merchant ids for each supported payment channel configuration or by using a single sub-merchant ID and programmatically managing the payment switch ids. The Payment Gateway can be a physical gateway device or software running on some other system (host). Always use the appropriate channel configuration when working with this data object.


Transaction roles are also referred to as token-level routing or rule-based routing. It is the process by which a tokenized payment card number is evaluated against a set of rules by an RTSP to determine if that transaction is approved or declined. Rules can include things such as CVV, zip, postal code, customer balance, and other merchant-defined rules or custom rules that can change depending on context.

A payment gateway services enables the transfer of sensitive information such as credit card or bank account details from a website to an acquirer, so that the merchant can process and authorize payments online. An online payment gateway is a third-party service that websites or other e-commerce applications use to help process financial transactions.

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