Payment gateways break down the tedious process of confirming customer data, connecting the involved parties, and validating a transaction before authorizing it to proceed to the end.
Whether you use a physical or virtual gateway, the transaction process follows the same route. Nevertheless, web and mobile transactions use digital capture files to relay the credit card data in place of a card reader.
So what does a gateway really do, and why does your small business need it?
What Does a Payment Gateway Do?
- The shopper begins a credit card transaction through the seller’s online store or physical card reader.
- The gateway service then;
- Forwards the payment data to the recipient bank (or otherwise known as the acquirer/merchant bank)
- Confirms the credit card provider for the card in use (i.e., Visa, Mastercard, etc.), and then;
- Routes the payment data to the relevant payment avenue.
- The payment avenue forwards the transaction request to the card issuer (i.e., Visa, Mastercard, etc.) and shares the payment data with the relevant card provider.
- The card issuing bank conducts fraud-analysis procedures to validate the transaction’s authenticity and confirms whether the shopper’s credit balance can complete the purchase.
- The bank chooses whether to accept or turn down the payment and shares the verdict through the card network to the payment gateway and acquirer.
In a nutshell, the gateway service plays the middleman in a complicated transaction involving multiple parties.
The issuing bank confirms all credit card transactions at the point of sale, but everything happens through a gateway service. An approved payment indicates that the bank has set aside the money, but the seller is yet to receive the amount. In the shopper’s credit card statement, it appears as a “pending” payment.
Before the day ends, the seller must submit the relevant data for each of the pending payments. After that, all pending payments change status to “dedicated,” showing that the seller is now entitled to the money initially retained by the issuing bank.
The bank then releases the money into the seller’s bank, and merchants can have access soon after it appears on their merchant account.
Author Bio: Blair Thomas has been a music producer, bouncer, screenwriter and for over a decade has been the proud Co-Founder of eMerchantBroker, the highest-rated high-risk merchant account processor in the country. He also offers valuable insights on payment gateway solutions. Blair has climbed in the Himalayas, survived a hurricane, and lived on a gold mine in the Yukon. He currently calls Thailand his home with a lifetime collection of his favorite books.