Payment processing

How Does A Payment Gateway Work For An ECommerce Solution?

ecommerce solutionWhether you have a retail online store, online business, or brick and mortar location with a web presence, eCommerce solutions are greatly important to the success of your business. Driving sales, driving revenue, and connecting with your customer base are all part and parcel with having an eCommerce solution. The rise of online shopping continues to remain strong throughout North America, and businesses of all different industries and verticals are looking to an eCommerce solution to help grow their business and reach out to international markets that they would never have been able to do in the recent past.

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Not only does an eCommerce solution provide your customers with the ability to make purchases at any time, whether it is a holiday, the middle of the night, or on the go through a tablet or mobile phone. Providing convenient and secure processing through an eCommerce solution will increase customer loyalty, and drive revenue for your business.

As businesses continue to move towards an online presence driven by an eCommerce solution, very few merchants realize how an eCommerce solution and a payment gateway work. In order to properly explain how a payment gateway, and eCommerce solution work, I will break it down into 5 steps in order to better understand how a transaction works through your eCommerce solution.

To begin, a payment gateway facilitates the transfer of information between a payment portal; website, mobile phone, and the front end processor or acquiring bank.

Step 1

When a customer decides that they want to purchase your goods or services, they will navigate through your online store, choosing which items they wish to purchase by pressing either a check out button, or submit button which then prompts a page where they will enter their credit card information.

Step 2

If the order is done through a website, the customer's web browser will encrypt the information to be sent between the browser and the merchants web server. This is done through an SSL encryption. You will notice that when it comes time to enter the credit card information, the URL bar through your browser will show a lock image and an HTTPS: in front of the URL. This means that the website is secure through the Secure Socket Layer, SSL certificate.

Step 3

The merchant then forwards the transaction details to their payment gateway. This is done through another SSL encrypted connection. The payment gateway forwards the transaction information to the payment processor used by the merchant acquiring bank. The payment processor, who is providing the eCommerce solution, forwards the transaction information to the card association, Visa, MasterCard, or American Express etc. This is known as an authorization.

Step 4

The credit card issuing bank receives the authorization request and sends a response back to the processor with a response code. The response code is used to define the reason as to whether this purchase will be declined or authorized. If the response code used defines a decline action, this could be for a number of reasons: insufficient funds, over the credit card limit, compromised card etc. The processor then forwards the response to the payment gateway, which is then received and forwards it off to the website where it is interpreted as a relevant response which is then relayed back to the cardholder and the merchant. Although this process seems like it may take some time, in actuality, it ranges between 1-4 seconds.

Step 5

The merchant then submits all their approved authorizations in a 'batch', to the acquiring bank for settlement via their payment processor which is typically done at the end of the day, around midnight, and is automated through the payment processor. The acquiring bank deposits the total of the approved funds into the merchants chosen account. The process from authorization, to settlement typically takes anywhere between 24-36 hours depending on the payment processor.

Understanding how the payment gateway works with your eCommerce solution will be able to give you a great idea of how the process works, how your funds get deposited into your bank account, and the security that is involved with online payments. Having an eCommerce solution for your business is a great way to drive revenue, and understanding how it all works with your website will give you the comfort that you need to continue to process through an eCommerce solution in the future.


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Matt Moore

As the President and Co-Founder of BNA Smart Payment Systems, Matt is responsible for the company’s strategic direction, daily operations, and growth. Entrepreneurial by nature, he brings a wealth of sales and marketing experience earned from over 36 years in business. He has developed, implemented, and directed international sales and marketing strategies, established strategic alliances with international companies, and demonstrated leadership in the electronic payments market. Prior to BNA, Matthew served at the senior levels of major EFT/POS companies, helping them increase sales and optimize customer service. Matt is also a father of three, a fitness enthusiast who does power lifting and CrossFit, and he enjoys weekends at the cottage.

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