A payment gateway is a merchant service provided by an e-commerce application service provider that authorizes credit card or direct payments processing for e-businesses, online retailers, bricks and clicks, or traditional brick and mortar. The payment gateway may be provided by a bank to its customers, but can be provided by a specialized financial service provider as a separate service, such as a payment service. A payment gateway facilitates a payment transaction by the transfer of information between a payment portal 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.
  • 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.
  • If the order is via a website, the customer''s web browser encrypts the information to be sent between the browser and the merchant''s webserver. In between other methods, this may be done via SSL (Secure Socket Layer) encryption. The payment gateway may allow transaction data to be sent directly from the customer''s browser to the gateway, bypassing the merchant''s systems. This reduces the merchant''s Payment Card Industry Data Security Standard compliance obligations without redirecting the customer away from the website.
  • 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.
  • The processor forwards the authorization response to the payment gateway
  • The payment gateway converts the message from XML to ISO 8583 or a variant message format and then forwards the transaction information to the payment processor used by the merchant''s acquiring bank.


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