Payment Gateway

Payment Gateway-How does it work?

In today’s economy, most of the transactions are taking place online with the help of the internet. People are using digital money for payment rather than real cash. A payment gateway is a system for collecting money through digital mode with the help of various computer software programs. Under this system, most of the companies develop their e-commerce web site to collect funds through debit and credit cards and transfer the fund from the customer bank to the seller’s bank account. Whenever the company develops a payment gateway that means that now there are authorized by their bank to collect online payment from various customers. Payment gateway plays a very important role now a day to make online purchases easy and increase the transaction rate for the seller.

Get complete CFA Online Course by experts Click Here

Steps involved in the working of a payment gateway:

Step 1: First the customer has to place an order on the seller’s website for the purchase of the product or the service and when he or she places the order, the website will bring the customer on their payment page.

Step 2: Once the customer places the order, he comes to the payment gateway he can pay the money through his debit or credit card. In this step the website will ask for various information from the customer like the name of the cardholder, the number of his card, date of expiry of the card, and CVV (Card Verification Value) number of the card. Once the customer enters these details and proceeds to pay, the details will be sent to the issuing bank.

Step 3: Now the issuing bank will see if there is a sufficient amount in the customer’s account to make a purchase or not and accordingly the bank will then send the message to the merchant.

Step 4: If the message from the bank is positive i.e. if the customer that a sufficient balance then the merchant will carry on the transaction and if the bank reply is negative that means there is no sufficient balance and the transaction will not be carried.

Step 5: The bank also sends the verification message to the cardholder to carry out the transaction if he or she wishes.

Step 6: This information is again sent to the merchant and then the payment process will successfully be carried out and the money is transferred from the customer’s bank account to the merchant’s bank account.

Get complete FRM Online Course by experts Click Here

Benefits of payment gateway:

  • Payment gateways provide flexibility and convenience to the customer by paying the money through debit and credit cards and without carrying the real cash with them.
  • The transaction process is made faster through an online payment gateway, within seconds of time the purchase is made and the payment processed is also completed.
  • Because of the facility of payment gateway, many sellers can take their business globally and customers can also get various products that are not available in their near market.
  • With the use of standardized software and computer programs, the maintenance of security is made possible in the payment process.

Risks involved in Payment Gateway:

  • Breaching of the data is a common risk in online payment. If the merchant uses poor security software and because of the poor management of the payment gateway,  data breaches are possible. Sometimes this activity can also occur in the organization if the employees are unethical and use the details of the customer to commit fraud. Thus, data breach or data theft is a very important risk involved in the online payment gateway.
  • Sometimes it happens that when the payment is in the process some connection error occurs in the process and the money is transferred from the customer account to some other account, not to the seller’s account and to make the purchase the customer again has to make the payment.
  • Under payment gateway, many companies secure the necessary information of the customer because of the high maintenance cost of the system, and the information which is not secured by the company are used by the various attacker to use that information to commit fraud.
  • While many payment gateway providers want to emphasize the universality of their gateways, they cannot approve payments from unique card issuers and processing platforms.


With the implementation of various payment gateway in the market, the transaction is made easy to carry out from both seller and buyers part and it has helped the seller to increase the rate of transaction in the company than the regular payment process. As the world is becoming digital day by day various systems and software are coming into the market to make the day to days activates more convinced but because of this, fraud activities are also increasing. Customers have to be alert by making any purchase and do not easily enter into any fraud schemes. Customers should verify and educated themselves for the schemes and then and then only enter into such transactions.

Author: Charmi Mehta

About the Author: Charmi Mehta is currently pursuing an MBA with a specialization in Finance from the Department of Business Administration, Bhavnagar. Charmi is very much interested to work with data and its analysis and she is also fascinated by the financial market.

Related Post

Delivery versus Payment Contract

An Introduction to Income statement

Related Posts

Leave a Reply

Your email address will not be published. Required fields are marked *

1 × 5 =