A payment gateway is a service that authorizes and processes payments in online and brick-and-mortar stores. A gateway serves as a portal to facilitate transaction flow between customers and merchants. It uses security protocols and encryption to pass the transaction data safely. The data is transferred from websites/application/mobile devices to payment processors/banks and back.
Payment gateways can execute the following transaction types:
Authorization – a type of transaction used to check if a customer has enough funds to pay. It doesn’t include the actual money transfer. Instead, during authorization, a merchant ensures that a cardholder is capable of paying for an ordered item. An authorization transaction is used for orders that take time to ship/manufacture.
Capture – the actual processing of a previously authorized payment resulting in funds being sent to the merchant’s account.
Sale – a combination of authorization and capture transactions. A cardholder is first authorized. Then funds may or maybe not captured. It’s a regular payment for immediate purchases, like a subscription purchase, or e-tickets.
Refund – the result of a canceled order for which a merchant will have to apply a refund payment processing to return the money.
Void – similar to refund but can be done if funds were not yet captured.
The infrastructure of online payment processing is a little bit more complicated than you might imagine. For the customer, it’s represented by a small window, or a separate website, where they have to pass through the checkout. But actually, processing involves several financial institutions, or tools, verifying the transaction data on both ends, allowing the customer to complete the purchase in a few seconds.
When a customer checks out – passing the card number, expiration date, and CVV – a payment gateway has to perform several tasks, which take about 3-4 seconds:
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