How it works. A payment processing gateway connects the eCommerce website's shopping cart with the merchant processing bank's system. The stages of the process are as follows:
- A customer places an order on an eCommerce website and submits his or her payment information.
- The payment information is encrypted using a secure socket layer (SSL) service and sent to the merchant's server.
- The eCommerce gateway then collects the payment information and, after another SSL encryption, transmits it to the merchant account provider's server.
- The merchant processing bank then sends the payment details to the appropriate Credit Card Network (Visa or MasterCard).
- If the cardholder used a Discover or an American Express card, the payment processing provider serves as an acquiring bank and decides whether or not to authorize the transaction; then forwards the response to the merchant.
- The Credit Card Network forwards the transaction to the card issuing bank.
- The Issuer either authorizes or declines the transaction and sends a response code (through the exact same channel) back to the merchant bank. The response codes for declined transactions provide details for the reason the transaction did not get approved.
- The merchant processing bank then sends the response code (through the eCommerce payment gateway) to the merchant's website and it is presented to the cardholder.
- The whole process, from submitting the payment to receiving the response, takes seconds.
- The merchant then provides the service or ships the product and settles the transaction. It is very important that transactions do not get deposited prior to the product being shipped. If the cardholder notices the charge on his or her card statement or transaction activity (now available online in almost real time), prior to receiving the merchandise, the transaction may be disputed, initiating a chargeback.
- At the end of the business day, all authorized transactions (also called a "batch") are submitted to the merchant processing bank for settlement.
- The merchant bank then deposits the total transaction amount, minus interchange fees and processing costs, into the merchant's bank account.
- The entire process takes approximately 2-3 business days.
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