State the Working of a Payment Gateway. - Organisation of Commerce and Management

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State the working of a Payment Gateway.

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Solution

Meaning:

A payment gateway is an e-commerce application that authorizes payments for e-businesses, online retailers, bricks and clicks, or traditional brick and mortar businesses. It is the virtual equivalent of a physical point of sale terminal located in most retail outlets. Payment gateways encrypt sensitive information, such as credit card numbers, to ensure that information passes securely between the customer and the merchant.

A payment gateway facilitates the transfer of information between a payment portal (such as a website, mobile phone) and the Front End Processor or acquiring bank. Here is a step by step guide detailing how Payment Gateways work:

  1. A customer places order on website by pressing the submit order or equivalent button or perhaps enters their card detains using an automatic phone answering service.
  2. If the order is via a website. The customer’s web browser encrypts the information to be sent between the browse and the merchants webserver. This is done via SSL (Secure socket lever) encryption.
  3. The merchant then forwards the transaction detains to their payment gateway. This is another SSL encrypted connection.
  4. The payment gateway forwards the transaction information the payment processor used by the merchant’s acquiring bank.
  5. The payment processor forwards the transaction info to the card association. (e.g. Visa/ Mastercard)
  6. Finally the process of payment is done and the order will be placed securely. 
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2015-2016 (March)

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