The Role of Payment Gateway in eCommerce

A payment gateway is an e-commerce service that processes credit card payments for online and traditional brick and mortar stores. Payment gateways facilitate these transactions by transferring key information between payment portals such as web-enabled mobile devices/websites and the front end processor/bank.

Payment gateways fulfill a vital role in the e-commerce transaction process, authorizing the payment between merchant and customer. Popular payment gateways include PayPal/Braintree, Stripe, and Square.

E-commerce payment system works as the intervening medium between the customer and the merchants, through which the customer's payment is securely transferred to the merchant's bank accounts. You can find this e payment gateway as the virtual replica of the available point of sale which is located mostly in all the retail outlets.

Payment gateways vs. Payment processors: what's the difference?

A payment processor analyzes and transmits transaction data. Payment gateways authorize the transfer of funds between buyers and sellers.

How payment gateways work

E payment gateway plays an integral role in processing the transactions and also authenticated payments transferred to the merchants by the customers. All the specific and vital details regarding the payments are encrypted by the e-commerce payment gateway. They assure that the relevant and required information is passed with safety between the merchant and the customer.

When a customer places an order from an online store, the payment gateway performs several tasks to finalize the transaction:

Encryption: The web browser encrypts the data to be sent between it and the vendor's web server. The gateway then sends the transaction data to the payment processor utilized by the vendor's acquiring bank.

Authorization Request: The payment processor sends the transaction data to a card association. The credit card's issuing bank views the authorization request and “approves” or “denies.”

Filling the Order: The processor then forwards an authorization pertaining to the merchant and consumer to the payment gateway. Once the gateway obtains this response, it transmits it to the website/interface to process the payment. Here, it is interpreted and an appropriate response is generated. This seemingly complicated and lengthy process typically takes only a few seconds at most. At this point, the merchant fills the order.

Clearing Transactions

The steps outlined above are repeated in an effort to “clear” the authorization via a consummation of the transaction. However, the clearing is only triggered once the merchant has actually completed the transaction (shipping the order). The issuing bank changes the “auth-hold” to a debit, allowing a “settlement” with the vendor's acquiring bank. The processor is then relied upon to settle all of the vendor's approved authorizations with the acquiring bank at the end of the day.

Other Payment Gateway Functions

Payment gateways also screen orders with a myriad of helpful tools. This screening process filters out as much fraud as possible. Examples of gateway fraud detection tools include:

Delivery address verification

AVS checks

Computer fingerprinting technology,

Velocity pattern analysis

Identity morphing detection

Geolocation

Payment gateways even calculate tax amounts to authorize requests transmitted to the processor.

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