Durango helps merchants accept credit cards through our ecommerce internet payment gateway.

Internet Payment Gateway: How they work!

Point, click, approved; point, click, declined. We’ve all grown up around online payments. It’s the only world we’ve ever known! But indeed, there was a time before the simple click and ship, and direct deposits! Does anyone remember when deposit lines would snake around the bank lobby at 4:30 on Friday afternoons? Not anymore! Welcome to the 21st century!

An internet payment gateway enables online payments.  The payment gateway handles the “approved/denied” part of the online shopping experience by communicating between the merchant and the customer’s card issuing bank. But how does the payment gateway even work? How do you know that the customer’s credit card is valid and you can ship their order?

The Payment Gateway Shopping Cart

The payment gateway begins with what you’re selling. Most online retailers have adopted the grocery store “shopping cart” icon to indicate the items they would like to purchase. In the shopping cart, customers verify item, size, quantity, color, and any other identifying characteristics. They enter in their shipping information, payment information, and “submit” the order. Then the customer’s data is sent to the payment gateway.

The Three Steps To Approval 

Time for the magic to happen! First, the transaction information is read, encrypted for security, and sent to their card issuing bank (like CapitalOne) for approval or denial. Next, the internet payment gateway determines which transactions can pass through, and are ultimately approved or declined. Three things are done inside the gateway: Customers credit cards are processed for authorization, the transaction is settled, and the transaction is recorded in the reporting section.

Gateway Authorization

During the authorization step, the customer’s credit or debit card data must be encrypted, and then sent to the credit card issuing bank. This is so that the transaction can be approved or denied. In the modern era, this transaction time happens in an extremely efficient 2 seconds. Through the gateway, the merchant is able to set rules such as verifying billing address or CVV (3 digit code on back of the credit card). These steps help to prevent credit card fraud. Additional fraud protection measures such as IP blocking and velocity filters can also be enabled.

Payments Settling

As transactions are authorized throughout the day, the authorization places a temporary hold on the funds available on a customer’s card. At the end of the day, the internet payment gateway “settles” all of the previous day’s authorizations. This finalizes the credit card sale. All the transactions from a business day are then sent in one “batch” together to your processing bank (merchant account), and these funds will then be deposited to your checking account within 2 business days (except over the weekends or holidays of course).

Transaction Reporting

In the reporting section of the internet payment gateway, merchants view their transaction, review settlement batch reports or search for a transaction in case they need to issue a refund to a customer. Reporting is an effective tool for reconciling money coming in. The settlement batch report should always match the monthly merchant account statement from your processing bank.

Once you’ve received the authorization, your payment interaction with that customer is complete. Time to ship the orders! The authorization settles each evening, but once you’ve received the authorization you are clear to ship an order. Visa & MasterCard’s regulations require merchants to ship the products as soon as a transaction is authorized, not wait until the funds are received in your checking account 2 business days later. It is always a good idea to keep accurate records of customer communication.

Click here to log into Durango’s Internet Payment Gateway and take a tour! If you have any questions please feel free contact us!