The service that automates the payment transaction between the shopper and merchant. It is usually a third-party service that is actually a system of computer processes that process, verify, and accept or decline credit card transactions on behalf of the merchant through secure Internet connections. The payment gateway is the infrastructure that allows a merchant to accept credit card and other forms of electronic payment. When referring to payment gateways used for Internet transactions, it may also be called an IP payment gateway.
What A Payment Gateway Does
When a consumer clicks on the "pay now" button and submits his or her personal and financial information, these details are passed through your secure server to a payment gateway. Essentially this is the same as a till, or POS (point-of-sale) system in a brick-and-mortar store and acts like a middleman between banks. The transaction details are encrypted and passed from the payment gateway through to the merchant account bank.
What A Merchant Account Does
Your merchant account bank then requests authorization from the issuing bank to complete the payment. The issuing bank responds via the payment gateway outlining whether the payment was successful or not along with any reasons why the payment was not successful. The payment gateway then processes this response and sends the relevant information back to your Web site and to your customer.