A Payment Gateway is an e-commerce service that authorizes payments for e-businesses and online retailers. It is the equivalent of a physical POS (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.

How payment gateways work

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A payment gateway facilitates the transfer of information between a website and a processing bank, quickly and securely.

When a customer orders a product from a website, the payment gateway performs a variety of tasks to process the transaction, completely invisible to the website's customer.

• Customer places order on website, by pressing the 'submit order' or equivalent button.
• The website encrypts the transaction information and sends it securely to the payment gateway.
• The payment gateway receives the transaction information from the website, encrypts it, and submits an authorization to the card issuing bank.
• The card issuing bank receives the authorization request, and replies to the payment gateway with an approved, declined, or error, encoded response code.
• The payment gateway receives the response code, and then sends a reply back to the website, based on the response. The website updates to show the customer that their purchase was approved, declined, or had an error.
• When a batch is made on days that transactions were processed through the payment gateway, the payment gateway sends a settlement request to the business' processing bank. The processing bank then issues separate requests to the card issuing banks and then deposits the funds into the businesses bank account when they become available for transfer.

Common Payment Gateways

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• Verisign
• Authorize.net
• Linkpoint
• Network Merchants
• iTransact