How E-Payment Gateway Works

How E-payment Gateway Works

E-payment Gateway Working: Before we look into how e-payment gateways work, let us discuss what really is e-payment gateway is. A payment gateway is a banking service that enables the secure transaction of credit card payments for online businesses.

Payment gateways facilitate secure transactions. It authorizes the transfer of the key information while using payment portals like online shopping apps or web-based online stores.

Say a customer wants to transfer money from his/her account to the merchant from s/he is accessing service. The gateway securely passes the sensitive financial information from the customer to the merchant. Then it is passed between the merchant and the bank.

Then the gateway verifies whether the cardholder is genuine or not. It asks the cardholder to approve the transaction and submits the charges for settlement. In financial terms, the settlement would mean the deduction of the customer’s amount as payment amount.


E-payment Gateway Working

This process involves four steps which define how a payment gateway works. These processes are:

1. Collection

a. When a customer wants to avail any service from a merchant, for example through an e-commerce website, the customer would enter his/her credit card details. The payment page of the website then submits the customer’s information to the gateway.

b. The information sent through the payment page to the merchant’s server must be encrypted. It is often achieved by passing the information through Secured Socket Layer (SSL).


2. Authentication

a. The merchant’s site forwards the encrypted information through an SSL encrypted connection to the payment server hosted by the payment gateway.
b. The payment gateway fetches the information and sends the request for the transaction to the Payment Processor used by Merchant’s Acquiring Bank through a secured channel.
c. Payment Processor forwards the transaction information to the Card Association (which acts as the issuing bank and directly provides a response of approval or declination to the payment gateway).


3. Authorization

a. The Card Association receives the authorization request and sends the response to the Payment Processor.
b. Payment Processor forwards the response to the Payment Gateway, and then the gateway forwards to the merchant’s website.
c. Steps a. and b. makes the Authorization step.
d. If the request succeeds, at this point of the transaction, the merchant authorizes his/her service to the customer as payment is ready for settlement.


4. Settlement

a. The last process involved is the settlement. Here the payment amount is deducted from the customer’s account and the amount gets deposited in the merchant’s account.
b. Payment gateways record the transactions and allow future reference to the merchant and the customers.


A payment gateway is a banking service that enables the secure transaction of credit card payments for online businesses. It’s working involves four major steps: Collection, Authentication, Authorization, and Settlement.

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