Anything sold online will require the use of a payment gateway. After a product has been selected and the customer decides they want to buy it, somehow, their financial information needs to be exchanged so they can be billed and the seller can get paid. That’s exactly what a secure payment gateway is meant to accomplish. These processors use advanced cryptography methods to ensure that customer information remains confidential, but the seller can still receive their funds. Without a payment gateway, there are no payments, plain and simple. How exactly does a payment gateway work, you ask? Well, here are the main aspects of what any processor gets up to:
This portion doesn’t involve any actual transfer of funds whatsoever, but instead concerns itself with ensuring that the funds are actually present. If the funds are there, payment will be authorized ahead of time. This allows businesses to get a product ready to ship or manufacture without the risk of being left high and dry.
Once payment is authorized, the funds will then be “captured.” At this point, the money goes from the customer’s bank account into the vendor’s merchant account. Capture can happen immediately after authorization or a few days after, depending on the merchant and payment gateway.
A combination of the two above transactions, a sale is an immediate authorization and capture of funds from the customer. Any service that’s delivered immediately (e-books, subscriptions, etc.) typically uses a sale transaction. A sale is perhaps the most common form of transaction done by payment processors, as fewer businesses are satisfied with being paid at a slightly later date than they were previously.
Should the customer be dissatisfied with their product and desire their money back, a refund can be authorized once everything has been discussed between the customer and the vendor. The same payment processor that made the sale will now reverse the transaction and put money back into the customer’s account.
A void is very similar to refunds, but is done after authorization but before a capture. A voided transaction won’t be charged to the customer’s account. Voids are often used when a customer decides they would rather not get the item, or if a merchant’s stock of an item should unexpectedly not be able to meet demand.
These five transactions make up the backbone of any payment gateway. Each different transaction is treated differently by the processor, something that might reflect differently in your billing cycle for using their service depending on how they operate. Some payment gateways only take money when money is received, i.e., through capture or sale. Others, however, charge to perform refunds or even voids, so always be sure to know what your agreement is with any particular payment gateway. Any industry that deals with a high number of refunds should choose a gateway that won’t charge high fees to handle refunds, plain and simple. Besides that, mostly everything done by a payment gateway is fairly straightforward. But then, what you’re really paying for is their digital infrastructure that actually does all of the moving and shaking on top of the encryption of customer data.
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