What is a payment service provider

A payment gateway is an e-commerce application service provider service that authorizes payments for e-businesses, online retailers. It is the equivalent of a physical point of sale terminal located in most retail outlets. Payment gateway protects credit cards details encrypting sensitive information, such as credit card numbers, to ensure that information passes securely between the customer and the merchant and also between merchant and payment processor.

A payment gateway facilitates the transfer of information between a payment portal (such as a website, mobile phone) and the Front End Processor or acquiring bank. When a customer orders a product from a payment gateway-enabled merchant, the payment gateway performs a variety of tasks to process the transaction:

the payment process
  1. A customer places order on website by pressing the Submit Order or equivalent button, or perhaps enters their card details using an automatic phone answering service.
  2. If the order is via a website, the customers web browser encrypts the information to be sent between the browser and the merchants webserver. This is done via SSL (Secure Socket Layer) encryption.
  3. The merchant then forwards the transaction details to their payment gateway. This is another SSL encrypted connection to the payment server hosted by the payment gateway.
  4. The payment gateway forwards the transaction information to the payment processor used by the merchants acquiring bank.
  5. The payment processor forwards the transaction information to the card association (i.e., Visa/MasterCard)
  6. If an American Express or Discover Card was used, then the processor acts as the issuing bank and directly provides a response of approved or declined to the payment gateway.
  7. Otherwise, the card association routes the transaction to the correct card issuing bank.
  8. The credit card issuing bank receives the authorization request and sends a response back to the processor (via the same process as the request for authorization) with a response code. In addition to determining the fate of the payment, (i.e. approved or declined) the response code is used to define the reason why the transaction failed (such as insufficient funds, or bank link not available)
  9. he processor forwards the response to the payment gateway.
  10. The payment gateway receives the response, and forwards it on to the website (or whatever interface was used to process the payment) where it is interpreted as a relevant response then relayed back to the cardholder and the merchant.
  11. The entire process typically takes 2-3 seconds

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