What is a Payment Gateway?
A payment gateway is a tool that potentially takes care of the transaction process end-to-end, covering security to settlement. A payment gateway, also known as the facilitator of the payment, is an online digital cashier who charges, verifies, collects cash, and hands over the deliverables.
Payment Gateway is developed and launched by fintech to allow merchants (businesses) to accept the payments in their selling platform, online or offline.
Payment Gateways
They serve as intermediary software solutions positioned between businesses (merchant selling platforms) and issuing bank accounts. These software solutions establish a channel through which the user (customer) can provide their sensitive information (such as card details, passwords, and PINs) to the merchant in exchange for the promised goods.
The payment gateway assesses and verifies the provided information, confirms the availability of funds, and deducts the required amount. Once the products are shipped or handed over, the funds are transferred to the merchant’s account within 1 to 2 business days.
The robust code within the payment gateway empowers users to initiate payment transactions within the seller platform. It facilitates the transaction process by executing the following sequence of actions,
In straightforward language, the software enables a seamless exchange of information between the issuer’s and acquirer’s accounts.
Benefits of a Payment Gateway
- Allows millions of users to perform a transaction with the merchants
- Reduces the fraudulent services in online payments with various authentication steps like OTP, CVV, or CCV
- Allows multiple payment options like a credit card, net banking, mobile wallet, or digital transactions.
- Easy report generation, reconciliation, and settlement for accounting frameworks.
What is a Payment Switch?
A payment switch is a technology integrated within payment gateways, functioning as an autonomous component seamlessly integrated within the payment gateway infrastructure to facilitate payment processing.
In the realm of online transaction processing tasks (OLTP), a payment switch manages all the intricacies within a transaction. To draw an analogy, if the payment gateway were likened to a founder overseeing the transaction, the payment switch would be the executive responsible for executing the actual payment processing tasks.
Payment Switch
Within a payment gateway, numerous merchant accounts are linked to their respective acquirer banks. Therefore, when a payment request is initiated from a merchant’s selling platform, the payment switch dynamically identifies both the acquirer bank associated with that specific merchant and the issuing bank responsible for the transaction through BIN allocation. It subsequently authorizes the transaction in a secure manner.
BIN allocation is just one of several methods that the payment switch employs to route transactions. It also provides support for routing based on factors such as transaction amount and the time of day. After receiving the message from the issuing bank, the payment switch formats the response and sends it back to the acquirer.
The payment switch is a versatile component that accepts payment requests from the payment gateway and initiates the necessary transaction steps.
Benefits of a Payment Switch
- Highly Scalable
- Dynamic Routing
- Fewer outages issues
- No more connectivity time out
- Secure and eliminates the fraud risks because of the encrypted BIN allotment.
- Allows extension of payment networks
Payment Gateway vs. Payment Switch
In the whole payment ecosystem, payment gateway and payment switch are the two variables that have become the atom to all the online and offline businesses appending banks. The two entities are not different but not the same too. They are embedded into each other to reduce downtime and outages.
It is easy to confuse both and interpret them as one, but it is not. Although on a bird’s view, the operations of both are alike, the underlying subtlety in the payment processing tasks differentiates payment gateway from payment switch.
How do these two components collaborate seamlessly?
The payment gateway and payment switch function harmoniously, facilitating swift, secure, and adaptable transactions. Thanks to the versatile switch, the payment gateway can process over a million transactions within a split second.
Visualize the payment gateway as the railway tracks, with the payment switch serving as the railroad switch that directs train routes. Just as the railroad switch steers trains to their designated destinations, the payment switch guides the transaction process to the correct acquirer’s destination.
