How Payment Gateway Works

People are preferring cashless payments integration options and businesses who are not investing in payment gateways are lacking behind. A payment gateway processes online and in-store payments by securely transmitting your customer’s payment for authentication and approval. 

What is a Payment Gateway?

A payment gateway allows businesses to accept payments from customers using multiple methods like credit cards, debit cards, in-app wallet and bank transfer. It is a bridge between the bank and the the merchant which give you seamless transaction both online and in physical stores.

How Payment Gateway Works?

payment integration securely transfers your online payment from one account to another account and encrypts data like credit and debit cards. This payment integration also helps in preventing fraud and ensures the transaction is compliant with various regulations.

Adding a Payment Gateway

Once your online store is all ready to setup, the first step is to integrate payment gateways in your mobile app for secure seamless transactions. This enables the customer to transfer to payment to the merchant with complete transparency.

To do payment integration, select a service provider and integrate the payment gateway on your website or mobile application. You can also customize it to accept multiple payment methods according to your requirements.

For Example, Pay2Peer has tons of features for businesses and enterprises. From secure payment to automated payment handling and everything in between. 

The customer makes a Purchase.

Overall purchasing will become easier, convenient, and secure. Initially, the customer will select the product they want. Then they perform checkout which will lead them to enter their payment information. For example, card number, cardholder’s name, expiry date, and most importantly CVV. The payment integration into the app securely handles the information and ensures the transaction is safe.

DIrects the Customer to Payment Gateway

Once the purchase is completed, your customer will be redirected to the payment gateway. 

Data Encryption and Fraud 

Fraud Checks and Data Encryption issues are really common these days. The payment integration encrypts the entered data to ensure the security of your data. Moreover, it performs fraud checks to assess the transaction’s legitimacy.

Transaction Processing

The gateway then transfers the money to the acquiring bank. The bank then communicates with the card provider such as Visa, MasterCard, and Rupay, which contact the bank for authorization.

Fraud Detection

Frauds are increasing exponentially and payment integration gateways are there to protect businesses from an increasing number of frauds. Fraud detection is a crucial feature of payment gateways, as they automatically identify potential fraud. 

They use techniques like IP geolocation, pattern recognition, and velocity checks to monitor transactions. More advanced platforms, such as Razorpay, even leverage machine learning and AI to improve fraud detection capabilities.

Bank Response and Authorization

Once the bank receives the transaction details, it verifies various parameters to ensure the transaction authenticity. This can involve the customer’s identity, banking information, and, for higher transaction amounts, their spending habits. 

Response from Bank

Once verification is complete, the acquiring bank contacts the issuing bank, which then provides a response indicating whether the transaction has been approved or declined.

Customer Notification

The payment gateway relays the transaction result to the acquiring bank, and the merchant then displays the status to the customer. If the transaction is approved, the customer sees a confirmation message with their order details. If declined, they are prompted to retry using a different payment method. 

This entire process occurs in the background, with only the outcome shown on the website.

Settlement

After payment approval, the acquiring bank begins the settlement process. The payment gateway collects the funds from the customer’s issuing bank and transfers them to the merchant, usually within a few business days. Once the settlement is finalized, the customer is notified with a confirmation message confirming that their order has been successfully placed.