In the eCommerce world, the online payment gateway replaces the traditional physical point of sale terminal which exists at any physical store. The online payment gateway facilitates the secure flow of information, back and forth, between the merchant’s web site and the merchant’s processing bank.

Credit card transaction starts with a data flow that ends with a money flow. The shopper’s credit card details, collected online, need to be authorized by the shopper’s issuing bank. Few parties participate in this flow: merchant’s site, payment gateway, processing bank, credit card association and the issuing bank. Usually the full data flow (authorization process), back and forth, takes less than 3 seconds.

Only authorized transactions can be captured for payment. Actual payment is forwarded by the issuing bank, through the credit card association, to the acquiring (processing) bank, which deposits the funds directly into the merchant’s bank account. The money flow usually takes 2-3 business days. The payment gateway is only involved in the data flow and at no stage touches the money.

As online transactions occur without a physical presence of shopper or card, “CNP (Card not present) transactions” , fraud becomes somewhat easier to perform.
In order to maintain a safe eCommerce environment, the credit card associations developed a set of rules that regulates this CNP flow.

Every merchant is requested to take measures against potential fraud and needs to perform a set of checks in order to represent chargebacks. Different gateways offer a variety of tools to help merchants fight fraud over the net. Such tools include, among others: geo-location, AVS, velocity and other pattern analysis, CVV & VBV. When shopping for a payment gateway and comparing prices be sure to compare features as well…