For every merchant selling goods online, the biggest challenge is to have a mechanism for connecting a payment application to the credit card processing networks. It is very complicated, difficult, expensive and beyond the resources of most businesses. Therefore, a payment gateway company comes into existence where a merchant can easily connect to the Payment Gateway, which provides the complex infrastructure and security necessary to ensure secure, fast and reliable transactions.

1. 1. What is a Payment Gateway?
For every merchant selling goods online, the biggest challenge is have a mechanism for
connecting a payment application to the credit card processing networks.
It is very complicated, difficult, expensive and beyond the resources of most businesses.
Therefore, a payment gateway company comes into existence where a merchant can
easily connect to the Payment Gateway, which provides the complex infrastructure and
security necessary to ensure secure, fast and reliable transactions.
2. Let’s understand the concept more closely:
 Payment gateway is a web-based service that integrates into an e-commerce
website’s shopping cart and collects payment information provided by
customers at the check-out.
 The gateway application then encrypts the data and transmits it to the card
issuing bank for authorization.
 The authorization of the card and the amount as a response is then sent to
the merchant and is displayed to the cardholder.
3. Who are the players in the game?
 Cardholder: an authorized payment card user
 Issuer (Bank of America, Citibank, Capital One): a financial institution that
issues payment cards and maintains a contract with cardholders for
repayment
 Merchant: an authorized acceptor of payment cards for the payment of
goods and services.
 Acquirer: entity that solicits merchants on behalf of an Acquiring Bank for
payment card acceptance and enables card payments from customers. IPPay,
Wells Fargo Merchant Services, NPC
 Payment Gateway: Terminal / Payment Gateway: the physical or virtual
device used by the merchant to communicate information to the Acquirer’s
Front-End Network. In the case of a Payment Gateway, it can be defined as
an e-commerce application service provider service that authorizes
payments for merchants. It is the virtual equivalent of a physical point-of-sale
terminal located in most retail outlets. Payment gateways interface with a
merchant’s billing systemand pass that data to a Front-End Authorization
Network.

2.  Front-End Network (TSYS): the platform that the credit card terminal /
gateway communicates with when approving a transaction. The front-end is
responsible for the authorization and capture portion of a credit card
transaction. Additional front-end platform interconnections may be required
to support ACH and debit transactions.
 Back-End Network (IPPay, First Data Omaha, FNBO): the platform that takes
captured transactions from the Front-End Network and settles them through
the Interchange system. The back-end generates daily ACH files for merchant
settlement. Other functions typically handed on the back-end include
chargeback handling, retrieval request and monthly statements.
 Association (Visa, MasterCard, American Express): the consumer payment
system whose members are the financial institutions that issue payment
cards and/or sign merchant to accept payment cards.
4. Here's a step-by-step example of how it works:
 A buyer purchases an item from MyOnlineShop.com and enters a credit
card number in MyOnlineShop.com checkout.
 Details about the purchase are sent by MyOnlineShop.com checkout to
the payment gateway for processing.
 The payment gateway forwards transaction information to seller's bank.
 The seller's bank forwards transaction information to the bank that
issued the buyer's credit card to authorize the transaction.
 The bank that issued the buyer's credit card either approves or denies the
transaction and sends that information back to the seller's bank.
 If the transaction is approved, the bank will deposit funds on a
merchant's account at a scheduled time.
 The payment gateway sends transaction details and response back to
MyOnlineShop.com.
 MyOnlineShop.com lets the buyer know if the transaction was approved
or denied.

3. 5. A Two phase process :
i. Authorization: process when an electronic request is sent through various
parties to either approve or decline the transaction.
ii. Clearing and Settlement: a process where all parties settle their accounts and
get paid
6. Top payment gateways:
1. Authorize.Net
2. PayPal
3. SecurePay.com
4. 2Checkout.com
5. FirstData Corporation
6. BluePayProcessing
7. PaySimple
8. Fastcharge.com
9. Paynova
10. ChronoPay