What is Electronic commerce or e-commerce?
Electronic commerce also known as e-commerce is the purchase or
sale of goods and services over electronic media which include the
web and computer networks. E-commerce generally involves exchange
of information regarding payment details and that is where payment
gateways come in as a platform where the buyers can enter their
payment details and thus be credited the amount in the payment
details. Payment gateways have made e-commerce be more secure and
it have been integrated in all the major e-commerce websites such
as PayPal, EBay. [image ref = 5]
In 1990, the first World Wide Web server and browser was created
by Tim Berners-Lee. It was opened for commercial use in
1991. In 1994 other advances took place, such as online banking and
the opening of an online pizza shop by Pizza Hut. During that same
year, Netscape introduced SSL encryption of data transferred
online, which has become essential for secure online shopping. Also
in 1994 the German company Intershop introduced its first online
shopping system. In 1995 Amazon launched its online shopping site,
and in 1996 eBay appeared on the World Wide Web.
How Payment Gateways Work
In our day lives we perform lots of online transactions and
often use credit cards, debit cards, or any other online payment
form for our online payments. A question may arise that is how it
comes to pass, which takes us to what a payment gateway is. A
payment gateway is an e-commerce application service provider that
connects a Web site with the bank. This terminal assembles,
encrypts and transmits the data to the desired merchant’s account.
The gateway executes a series of tasks to process a transaction
upon receiving a customer’s request to buy a product from a payment
gateway-enabled merchant. The payment gateways provider
offers a similar type of service between a merchant and
Here are some few steps to show how a payment gateway works.
Amazingly, it takes only a few seconds!
- A customer provides credit card (or any other acceptable form
of payment) details on a Web site or clicks on the “Submit Order”
button to place an order.
- Details about the purchase are encrypted and securely forwarded
to the merchant’s browser which then directs them to the payment
gateway. The payment gateway hosts this whole SSL (Secure Socket
Layer) encrypted connection to the payment
- The gateway then processes or rejects the transaction
(verification process). This is achieved through forwarding of
transaction information to the acquiring bank’s payment processor
which in turn relays the same to the card association.
- An acceptance or rejection message is sent to the shopping
cart. The message may be directly from the card association or the
- The money is then transferred to the merchant’s bank (the time
it takes here varies with different banks and merchants’ terms)
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Thus a payment gateway simplifies the transfer of information
from a payment portal (such as anIVR service, website, or a mobile
phone) to the acquiring bankorFront End Processor.
The credit card issuing bank receives the authorization request.
It is expected that the bank sends a feedback to the processor.
This is the crosschecked fraud, debit or credit checks on the
request. Typically, the response is sent through the same process
as the authorization one. A response code for either denial or
approval is thus used. Well, additional details as to why the
authorization failed are provided. The code gives such details. The
reasons for failure could be lack of enough funds or unavailability
of bank links. The credit card issuer holds an authorization
related to that of the merchant. The issuer should relate to the
merchant for the approved amount. This can impact the consumer's
ability to spend. This is because the holder can put a hold
on the debit amount as well as extending his or her line of credit.
The authorization feedback is sent to the payment gateway through
the processor now.
The gateway is therefore responsible for forwarding the response
to the website. This does not necessarily mean it is only through
the website that the payments can be processed; any other interface
with capabilities could receive the response. The cardholder as
well as the merchant gets a timely response. This is after some
interpretations are done. This is termed as the Authorization or
simply “Auth”. The whole process will consume about 2-3 seconds of
A repeat is done once more but only after the merchant has
fulfilled the order. This time it is intended to clear the
authorization through transaction consumption. The merchant
acquiring bank is prepared to settle with the merchant. Here, the
cleared auth is acknowledged by use of a ‘clearing’ the auth by the
bank. The merchant is expected to show up a batch of approved
authorizations to the acquiring through its processor. The batch is
known as the settlement request from the credit card issuer.
The settlement payments are done to the acquiring bank the
following day. The merchant’s nominated account is thus credited
with the total amount that has been approved. The account could be
from the acquiring bank or any other bank where the merchant banks
from. Basically, the entire process will take around 3 days; from
authorization to settlement until funding.
Before sending authorization request to the processor, tax
calculations are necessary. The payment gateways should be able to
check for frauds in real time. These gateways thus have automated
tools for these functions. Among the various tools available
include: velocity pattern analysis, ‘black-list’ lookups, OFAC list
lookups, geolocation computer finger printing technology, basic AVS
checks, delivery address verification as well as identity morphing
Security for payment gateways is guaranteed for most sites but a
rule of the thumb is that you should check if the website is
secure. If you are not tech guru, no worries, just check the
website URL and make sure that it is has a suffix of s after the
http such as https. The s in tech terms means secure. Security is a
very important parameter when it comes to payment gateways as you
want to ensure the safety of your money.
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A quick summary of the payment
gateway it is mainly an important portion of a website, where you
can enter your payment details. Based on the amount entered the
payment platform will link you with a merchant account. The
merchant account is a form of an online account. The merchant
account will link with your business account in the bank. The
business account contains the bank account details that link the
credit card number. You will eventually get that your account has
been credited with the said amount subject to the approval time of
The whole transaction takes a short period of time but it maybe
longer depending on the bank. When thinking of using a payment
gateway make sure that the business account processes transactions
very fast. Failure to which there will be a bottleneck.