How do online payment gateways work?

Let me explain what a payment gateway is first.

It’s a piece of software used to facilitate the communication between different entities, enabling the transfer of transaction information from the merchant to the acquiring bank.

Simply put, it’s a mediator between the cardholder, the merchant, and the acquiring bank. It uses a payment switch to manage the communication process quickly and smoothly.

Now let’s take a look at how a payment gateway works.

1. Once you complete an order on the merchant’s website, the system redirects you to the payment form, where you enter your credit card details. After you fill out the necessary information, you click ‘Submit.’
2. The merchant receives your credit card information. Afterwards, your credit card information along the order amount is transmitted to the payment gateway.
3. Using payment card information, a payment gateway sends an authorization request to the acquiring bank.
4. The authorization request is redirected to your IPS (Visa / MasterCard / etc.). Upon approval, it’s redirected to an issuing bank.
5. If your card is 3DSecure, the system will redirect you to a page where you should enter the password.
6. The system redirects the information from the IPS to the acquiring bank.
7. Upon completion, a payment gateway sends a request to the acquiring bank and later to the IPS and the issuing bank to subtract an order amount from customer’s cart.
8. If there are sufficient funds on card owner’s balance, the issuing bank sends confirmation of the transaction to IPS.
9. IPS gives its confirmation about 15 minutes after the authorization, a merchant finds out that a transaction is successful.

As you can see, the work of payment gateway is very complicated. Even though a regular credit card payment takes up to 10 seconds, it’s a complicated system, inside which many nano-processes happen.

 

The same applies to the transfer of IP-package, it is very complex processes that are not disclosed to end users, and few know about them.