How Online Payments Are Processed

When you’re looking into online merchant accounts - or you find that you’re taking your brick and mortar business online and want to be able to accept credit card payments - you need to be sure that you have an understanding of what a payment gateway is and how it works.

Ultimately, what a payment gateway does is simple: it facilitates communication between your bank and that of your customers’ or clients’ credit card provider. While it happens nearly instantaneously, it’s the process of what a payment gateway does that can become a bit more complicated.

When a customer or client places an order through your web site and will be paying by credit card, the following takes place with regard to merchant account payment gateways:

1. Once your customer’s credit card information has been entered into your web payment page, the details will be encrypted by the customer’s web browser.
2. The encrypted customer credit card information will be forwarded from your web server to your payment gateway.
3. The payment gateway will establish a connection with your acquiring bank - the bank account that is associated with your merchant account.
4. The payment gateway will establish a connection with the processor that is connected to your customer’s credit card - most often, the bank that issued the credit card.
5. The encrypted credit card information is sent to the appropriate card association - Visa, Mastercard, etc. - unless the customer is paying with a Discover Card or an American Express.
6. The transfer of funds from the customer’s account to your merchant account will be approved or declined and the response is sent to the acquiring bank either confirming the approval or stating a reason why the transaction was denied.
7. The response from your customer’s credit card company will be sent through the payment gateway to the customer’s computer browser that will interpret the data and let them know whether or not the sale went through.
8. As a merchant, you’ll go on to arrange for the shipping of the customer’s purchases.
9. You’ll batch your approved transactions and settle them at a later point in time so that the funds can be transfered to your acquiring bank - which will then deposit the funds into your business account.

Ultimately, the process of a transaction being filtered through the payment gateway for your online merchant account takes a matter of seconds (to have the process completed and the money in your bank account takes only a matter of days).

As payment gateways for online merchant accounts become more advanced, additional tools are included for the merchants - these tools can be used to detect fraud, calculate taxes and shipping charges and to identify the customer’s computer so that you can be sure that the credit card transactions that you process are legitimate.