How Payment Gateway Works?

Adding a Payment Gateway
Once you have set up your online store, the first step is to add a payment gateway. Integrating a payment gateway with your online store ensures that all transactions are conducted safely and securely. This way, all the parties in the transaction, namely the merchant and the customer, have complete information about the process.

Adding a payment gateway to your website or mobile app involves selecting a suitable payment gateway service provider and incorporating the technology into your website’s checkout process. You can customise it to allow as many or as few payment methods as you want to accept.

Razorpay offers different types of payment gateway integration options for your enterprise’s needs.

Customer Makes a Purchase
With a payment gateway, the process of making purchases is a lot more secure and straightforward.

When a customer visits your website, they’re presented with a list of products and services. Customers pick products of their choice and clicks on purchase. They are asked to select a payment method of their choice and then enter their payment details. If they select a debit or credit card, for instance, they’ll be asked to provide their card number, cardholder’s name, expiry date, and CVV.

Website/App Directs Customer to Payment Gateway
This is probably the most important step in the process for the customer.

When customers decide to make a purchase, they are navigated to the payment page to complete the transaction. They enter their payment information such as their card details or their UPI ID on the payment gateway page. The payment gateway securely encrypts the card details, performs fraud checks and transfers the transaction details to the acquiring bank. The acquiring bank sends the information to the card provider (eg Visa, Mastercard or Rupay) and onwards to the issuing bank for authorisation.

One of the most important functions that the payment gateway performs is that it automatically checks for fraud. This is an integral part of the process and it is where payment gateways like Razorpay can make a vital difference. It verifies the payment details entered by the customer using methods like IP geolocation, pattern recognition, and velocity checks. Some platforms also provide advanced fraud detection methods like machine learning and AI.

Authorisation and Bank Response
Once the acquiring bank receives the transaction details, it verifies several parameters to ensure that the transaction is authentic. Some examples include the customer’s identity and their bank details. In some cases, especially for large amounts, the customer’s spending patterns can also be considered.

Once the payment gateway receives a response from the issuing bank, it notifies the acquiring bank whether the transaction is approved or declined.
The merchant then redirects the customer to share the final status of the transaction. If the payment is approved, the customer will see a payment confirmation message with the details of their order. If the payment fails, they will be asked to retry the payment using different methods. This step happens backstage. Only the results of this step are displayed on the website.

Settlement
Once the payment is approved, the acquiring bank initiates the settlement process. The payment gateway receives the funds from the customer’s issuing bank and then settles the payment with the merchant, usually within a few business days.

Once this process is completed, the customer gets a confirmation message of the order being placed.