Question

Write short note on the following:
Payment Mechanism

Answer 1

Payment Mechanism:

1.  Generally, in e-business transactions, payments are made online.
2. There is no physical exchange of cash across a counter, as possible in retail outlets or stores.
3. The procedures and steps involved while making an online payment is known as ‘Payment Mechanism’.
4. Payments are made with the help of an e-commerce application service provider called ‘Payment Gateway’.
5. Payments can be made through debit cards, credit cards or by direct transfers from bank accounts through the net banking facility.
6. These options for payment are offered by most payment gateways.
7. A payment gateway authorizes payments made online by the buyer.
8. A payment gateway is the virtual equivalent of a physical point of sale terminal located in outlets.
    

Working of a Payment Gateway:
Any buyer who uses the payment gateway goes through the following steps:

1.  Place an Order: After selecting the desired goods, the customer confirms the order by clicking on the ‘Submit’ button on the merchant’s website.
2. Mode of Payment: The customer is then asked to select the mode of payment i.e. either debit/credit card or Net
   Banking.
    - The customer is then required to enter his credit/debit or Net Banking details, as he proceeds for payment.
    - Once the details are entered, the customer’s web browser encrypts the information.
3. Information sent to the Payment Gateway:
    - The merchant, or the e-business website, then forwards the transaction details to their payment gateway.
    - At this point, again information is coded.
4. Information sent to the Payment Processor:
    - The payment gateway forwards the transaction information to the payment processor used by the credit card issuing bank.
    - On the payment processor, the customer is required to enter a PIN or password.
5. Information sent to the Card Association:
    - The payment processor forwards the transaction information to the card association.
    (e.g.: Visa/MasterCard/American Express)
6. Information sent to the Card Issuing Bank:
    - The card association forwards the information to the card-issuing bank.
7. Authorization of the Payment:
    - The card issuing bank authorizes the payment and sends the authorization back to the merchant’s website (via the same process).
    - Once the authorization is received, the sale is approved. 
8. Duration:
    - The entire process does not take more than 2-3 minutes, depending upon the speed of the
   internet connection.
9. Internet Connectivity Issues:
    - If the internet connection fails at any step of the process, then the appropriate procedure is adopted.
    - In other words, if the connection fails after payment but before the order is finalized, then the payment is credited back to the card account within a stipulated time.