How Payment Gateways Work:

The Payment Process                                 

Here’s what actually happens when a customer makes a single payment. Note that the process is slightly different for subscription billing.

1. The customer enters their payment details. In a brick-and-mortar store, this means tapping their card or digital wallet. For online payments, they type the info manually. 
2. The payment gateway collects the card info and encrypts it – imagine that the gateway is a secretary who takes the customer’s check and places it in a strongbox.
3. The gateway hands the encrypted card info to the payment processor, who escorts it through the card network to the customer’s issuing bank. 
4. Meanwhile, the payment processor and card network run fraud checks on the card info. 
5. The bank then runs its own fraud checks and approves or declines the transaction. The processor relays this to the gateway, which displays a “transaction accepted” or “transaction declined” message to the customer. 
6. Meanwhile, the processor captures the customer’s funds and routes them from the bank, through the card network, and to your merchant account. Some processors send every payment immediately. Others wait to route all of their payments in a single batch, which can reduce processing costs. 

Some platforms combine the payment gateway and payment processor into one service – however, they’re technically two separate functions. The gateway is what the customer sees and interacts with, while the processor actually moves the funds from one place to the other. At Impact Payments, we offer both gateway and processor services.

About Integrations and API

Throughout the entire process, the merchant’s website needs to communicate with the payment gateway and processor. Communication is even more important for subscription billing, where your CRM pings the payment processor every cycle. That’s where integrations come in. 

When two different systems work together, that successful connection is called an integration. In this case, your merchant website needs to work smoothly with a payment gateway and processor. 

To make integration happen, the payment processor usually provides you with a tool called an API – it’s like a rulebook that shows your website, CRM, and billing systems how to talk to the payment gateway. 

Without an API, you need developers to figure out from scratch how to make the systems integrate, and doing that both reliably and securely is no small task. That’s why good payment processors come with APIs that adapt to your systems.