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How Payment Gateways Work

A payment gateway facilitates the transfer of information from your website to your merchant account after receiving approval or denial from the issuing card company.

The payment gateway performs a variety of tasks to process the transaction:

  • A customer places an order on your website by pressing the 'Submit Order'.
  • The customer's web browser encrypts the information to be sent
  • This is done via SSL (Secure Socket Layer) encryption.
  • The payment gateway forwards the transaction information to the payment processor (AKA: merchant account) used by the merchant's acquiring bank.
  • The payment processor forwards the transaction information to the card association (i.e., Visa/MasterCard)
  • If an American Express or Discover Card was used, then the processor acts as the issuing bank and directly provides a response of "approved" or "declined" to the payment gateway.
  • Otherwise, the card association routes the transaction to the correct card issuing bank.
  • The credit card issuing bank receives the authorization request and sends a response back to the processor (via the same process as the request for authorization) with a response code. In addition to determining the fate of the payment, (i.e. approved or declined) the response code is used to define the reason why the transaction failed (such as insufficient funds, or bank link not available)
  • The processor forwards the response to the payment gateway.
  • The payment gateway receives the response, and forwards it on to the website (or whatever interface was used to process the payment) where it is interpreted as a relevant response then relayed back to the cardholder and the merchant.
  • The entire process typically takes 2–3 seconds
  • The merchant submits all their approved authorizations, in a "batch", to their acquiring bank for settlement. (using your merchant gateway)
  • The acquiring bank deposits the total of the approved funds in to the merchant's nominated account. This could be an account with the acquiring bank if the merchant does their banking with the same bank, or an account with another bank.
  • The entire process from authorization to settlement to funding typically takes 3 days.


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