Concept and Key Operational Principles of Payment Gateway

Published:
December 10, 2021
payment gateway

The payment gateway enables the payment ecosystem to function smoothly, as it helps companies and individuals to process payments on the Internet. If you have an online store, you don’t need to be a payment gateway pro, but it’s important to understand the basics of how an online payment flows from your customer to your bank account.

Let’s take a look at what a payment gateway is, how it works, what an online merchant is for, and how to determine which payment gateway service is right for your company.

Key Links in Online Payments

Before getting to the concept of a payment gateway, you need to identify the main players in online payments. When a customer clicks the “Pay” function on your site, the main players take part in the payment.

  1. Seller: this is you, namely an Internet business that operates in any field (travel, retail, e-commerce, games, forex, etc.) that offers products or services to customers.
  2. Customer: the cardholder who wishes to have access to the products or services marketed by the merchant and initiates a payment.
  3. Issuing bank: An issuing bank is a client bank that produces a client’s credit or debit card on behalf of the schemes (Visa, Mastercard).
  4. Acquirer: This is a financial company that maintains a merchant’s bank account. The acquiring bank transfers the merchant’s payments to the issuing bank in order to receive the transaction.

What Is the Main Concept and Characteristics of a Payment Gateway/Processor?

A payment prossesor is a technology that collects and transfers payment data from the client to the acquirer, and then confirms the acceptance or cancellation of the payment back to the client. The payment gateway carefully checks the details of the client’s card, guarantees the availability of finance and, as a result, enables merchants to receive payment. It acts as an interface between the merchant’s website and its acquirer. It encrypts sensitive credit card information, allowing secure data transmission from the customer to the acquiring bank through the merchant.

In general, the payment gateway is an intermediary between the buyer and the seller, ensuring that payment is made safely and quickly. An online payment gateway can make it easier for sellers to introduce the required software. As an intermediary in payment processing, the gateway regulates the security of confidential customer card data between the acquirer and the merchant.

Why Is a Payment Gateway Required?

One may wonder why a payment gateway is needed if it is an intermediary? An online payment is processed as a payment without presenting a card. The customer’s card cannot be physically passed through the POS terminal, as is the case in ordinary stores. Therefore, you can rely solely on the card data that the client writes on the payment page. However, how to be sure that the card used by the client belongs to him/her? In operations without presenting a card, the risk of fraud is the highest, and it is in these situations that the payment gateway helps a lot.

What happens if the payment gateway is removed from the flow of Internet transactions? Fraudsters will easily gain access to the data of the cards used to make payments, which will make any business vulnerable to fraud and reverse transactions. In addition, scammers will look for additional options for making illegal payments, which can damage the reputation of your company.

The payment gateway keeps your client’s privacy. The payment prossesor directs information from you, the merchant, the acquirer and the issuing bank using data encryption to prevent unwanted threats from personal card data. In addition to controlling fraud, the payment gateway also protects merchants from expired cards, not getting enough money, closed accounts, or exceeding credit limits.

How Does the Payment Gateway Work?

The client determines for himself/herself the product or service that he/she needs and goes to the payment page. Most payment gateways offer you different options for your transaction page. Such mechanisms offer you the following options for customizing your payment page, customized according to your business requirements.

Hosted Payment Page

A ready payment page where customers will be directed when making a payment. The payment prossesor securely receives the payment information before sending it to the acquirer. A hosted payment page minimizes the PCI load for online retailers as long as you don’t collect and store cardholder information on your own server.

Server-To-Server Integration

Server-to-server connection is also called direct integration, as the process connects 2 servers – the merchant with the payment gateway. By requesting card details on the payment-processing page, you can provoke a direct transaction. Customers can make a payment by card without being redirected to the payment gateway page, which will give a faster payment, a more user-friendly interface and more control over the design of the payment page from the merchant’s point of view. Server-to-server integration is fine if you need saved customer billing information before sending it to a payment gateway for further processing.

Client Side Encryption

Client-side encryption, also referred to as encryption at source, is confidential encryption on the client-side device before it is sent to the merchant’s server. This enables the merchant to facilitate PCI compliance requirements. In general, it enables you to accept transactions on its website while at the same time encrypting the card data in the browser using the payment gateway encryption library.

  1. The client enters information from his credit card or debit card on the payment page. These are the cardholder’s name, expiration date and CVV number (3 digits on the back). This information is privately passed to your payment gateway, depending on the integration (hosted payment page, server-to-server integration or client-side encryption).
  2. The payment gateway tokenizes or encrypts card information and checks for fraud before sending card data to the acquiring bank.
  3. The acquiring bank then sends the data to the card schemes (Visa, Mastercard).
  4. Card schemes also check data for fraud, and then send information about the payment to the issuing bank.
  5. The issuing bank, after checking for fraud, authorizes the payment.
  6. Confirmed or canceled payment messages are sent back from the card schemes and then to the acquirer.
  7. The acquiring bank sends the approval or cancellation information back to the payment gateway, which then sends a message to the merchant. If the transaction is approved, the acquirer receives money from the issuing bank and holds the amount in your merchant account.
  8. Next, the money is transferred to the seller’s account, this process is known as settlement; the actual settlement period depends on the agreement signed by the seller with his/her payment prossesor.

Based on the message, the seller can either confirm the payment or ask the buyer to try a different payment option.

How Does the Payment Gateway Work?

Both sellers and buyers benefit from using a payment gateway, although most of its operation occurs in the background of the transaction. All the steps mentioned above take very little time.

If you are interested in any commercial field, you can also see different offers of businesses for sale in various jurisdictions. In particular, you can pay attention to the following categories:

Our specialists will help you to choose the best option among the proposed companies. Feel free to contact us anytime.

Related insights

Offshore bank license in Cayman islands

Commonly-chosen space for banking, largely dominating the rest due to high-quality private-banking. Offshore bank license in Cayman Islands gives entrepreneurs possibilities to provide banking-services legally, thereby strengthening assurance of partners and capital-holders. Offshore banking licenses Cayman Islands Presently, Caymans are a promising and desirable hub for Chinese establishments. Several new banks already applied for permits…

Read more 21.03.2023

Offshore bank license in Bahamas

Bahamas banking-niche possesses a status of a rapidly growing segment of economy. Banking facilities offering commercials only for people and structures without residence are considered non-residential companies for foreign exchange monitoring goals. Thus, it isn’t permitted for them to propose services for locals and businesses not previously getting Central Bank’s approbation. It makes it easy…

Read more 21.03.2023

Offshore bank license in Gambia

Having a permit such as offshore bank license in Gambia gives possibilities to offer accounts opening and management services, and to carry out all related operations related to them. Offshore-accounts in the Gambia give certain advantages. The list of such privileges includes: strong assets protection-mechanisms; higher interest-rate; low-rates or no taxation. How to get offshore…

Read more 16.03.2023

Offshore bank license in Labuan

Possessing such a permit as offshore bank license in Labuan requires passing through a complicated process. All local commercial structures are administered by Labuan FSA. This authority is in charge of managing jurisdiction’s International Center and acts as main local enforcement body. Firms intending to get permission for such activities apply in person to FSA….

Read more 16.03.2023

AEMI license in Cyprus

AEMI is a financial establishment that carries out electronic money circulation. According to Cyprus law, AEMIs must have an appropriate license from the Central Bank of Cyprus to ensure a high level of protection of client funds. Overview Cyprus legislation allows AEMI to carry out a wide range of financial operations, such as issuing electronic…

Read more 13.03.2023

AEMI license in Czech Republic

Today’s country has favorable legislation that makes it easy to register and conduct business in the country. The government seeks to create favorable conditions for entrepreneurial activity, which makes the Czech Republic one of the most suitable countries for obtaining a permission for an Electronic Money Institution. Authorized Electronic Money Institution (AEMI) in the Czech…

Read more 13.03.2023

AEMI license in Ireland

Ireland has one of the most developed virtual money industries in Europe. The country has several key players in the market such as PayPal, Stripe and Skrill. These firms issue virtual money and supply remittance favors to millions of customers worldwide. Overview The E-Money Act in country requires all electronic money issuers to be licensed…

Read more 13.03.2023

AEMI license in Poland

Today’s country, which has been a member of the EU from 2004, when supplying the issue of virtual money and remittance systems, must be controlled by the Second Directive of Europe and the demands of the GDPR adjustment. At the state level, the monetary controller (Financial Supervision Committee) has not formed liberal or proscriptive terms,…

Read more 13.03.2023

Crypto Regulating in Poland 2023

The popularity of crypto is growing rapidly. But the work of crypto-companies is complicated by the lack of a developed legal workspace in most states. In Poland, the government regulates digital currency. Entrepreneurs who want to work in this field register corporations in the state and supply services to inner and foreign markets. Crypto license…

Read more 09.03.2023

Cryptolicense in Germany

Germany is a favorite territory for investors searching to enroll a crypto business-company in Europe. This country is a highly-developed EU participant country with the fourth biggest economy worldwide. Country was one of the first states in the world to propose monetary establishment legal certainty permitting them to retain crypto assets. State’s crypto adjustment stipulates…

Read more 09.03.2023

Crypto registration in Isle of Man

In the past, many businessmens were interested in one of the tax-free jurisdictions – the Isle of Man. To date, Isle of Man administration agencies have passed a series of laws aimed at controlling crypto actions, mostly ICOs. If you are interested in acquiring a Isle of Man Crypto exchange permission , you should keep…

Read more 04.03.2023

UK Forex Brokerage License

The British FX brokerage permit is one of the most authoritative permissions in the world. In order to complete the operation of achieving a FX broker license in the UK, the firm must be enrolled in the country. An organizational and lawful form such as a limited liability corporation (LLC) is the best choice. Regulation…

Read more 03.03.2023