How do payment gateways work?

Payment gateways are an ambiguous topic. To help you better understand what they are and why you need one, let's see what payment gateways look like in action.

Step 1: Once the customer makes a purchase on the e-commerce site, the e-commerce platform passes it to the payment gateway via an encrypted connection.

Step 2: The payment gateway receives the credit card information and forwards it to the business owner's business account. More specifically, the payment gateway company passes the credit card information to the payment processor of the business account bank. Authorization to process credit and debit card transactions between buyers and sellers.

Step 3: Next, the payment processor contacts the customer's credit card network (Visa, Mastercard, etc.). The card network transfers the transaction to the credit card bank (customer bank).

Step 4: Check with the issuing bank to ensure funds are available and the transaction is not fraudulent. Depending on the bank's findings, it will either approve or reject the transaction. Regardless, it communicates its decision to the credit card network.

Step 5: Process or reject the sale. If the transaction is approved, the credit card network will notify the merchant account's payment processor and funds will be allocated to the merchant account. The information will also be forwarded back to the e-commerce platform via the payment gateway, informing the customer that the sale has been processed (or in question, rejected).

Thanks to the payment gateway, the whole process happens in seconds.