Payment Gateway Terms You Need To Know
The role of the payment gateway is to let you accept your online payments with the help of the internet. Like a gateway allows you to go from one side to another, the payment gateway lets the funds pass from one party to another. Similar to the normal gateway, that secures and acts as the boundary, the payment gateway does the same.
Well, this was the basics about the payment gateway that would also include the payment aggregators which is explained further.
The online money payment is widespread due to its obvious benefits. People want to implement the same in their businesses. They have heard about a lot of online payment modes individually, that has gained so much popularity after the demonetization. Similarly, they also know about the payment gateway from somewhere but many of them do not know how to get it, how it works, what all things are included, the backend process, etc.
So, this article is for the ones who are new to this whole payment gateway thing or aren’t new but are not aware of some of the important payment gateway related terminologies and the parts of a payment gateway in its anatomy.
Important payment gateway terms are explained below :
1. Payment Gateway / Aggregator
The aggregator brings various payment modes at one place to accept and make online payments.
They need to make the technical tie-ups and integrate them all to offer them with one checkout so that the customers can make the payment with their required chosen option. For example, wallets, UPI, debit card, credit card, net banking, etc.
2. Payment method
There are so many options to make an online payment like debit card, credit card, UPI, Wallets, etc. Payment gateways and aggregators bring all the options at one place in the form of payment checkout. All these payment options are known as Payment Methods.
3. Merchant
Merchant is the service provider or the product seller who wants to accept the online payment for their business.
In the payment gateway reference, the merchant could be anyone who would like to use the payment gateway and registers for the same. It can be a small shopkeeper, an eCommerce seller, freelancer, YouTuber, etc.
4. Customer / User
The one who wants to make the online payment to the Merchant through the payment gateway with the available online payment options.
5. Merchant Dashboard
The account login with the payment service providers like the payment processors, payment gateway, payment aggregator, etc is known as the Merchant Account Dashboard.
When an account is registered with the payment gateway and it is activated by them to receive the online payments.
It is the hub for all the details of transactions, settlements, refunds, customers, merchant personal profile, test mode access, API Encryption Key, etc. Other useful features that a merchant dashboard provides would be the statistical and graphical representation and comparisons of different kinds related to the transactions, mode of transactions, etc.
6. Acquiring Bank
This is being used a lot when talking about the whole payment gateway process, refunds, etc. Also, it is an important part of the funds transfer through the payment gateway.
In simple words, Acquiring Banks is associated with the Merchants’ Account being registered and authorized to accept the payments of the transactions done by the customers.
Technically, when the payment is initiated the acquiring bank through the payment gateway passes the authorization request to the customer’s bank to deduct the money.
They are the ones who would provide the settlement facilities, that is, the routed funds from the payment gateway are settled by them.
7. Issuing Bank
Issuing Bank is the customer’s bank in which the customer has the bank account and using its Net Banking or the bank that has issued the customer the credit card. Basically, when the payment is made the amount is being deducted from that account.
Or, if the credit card is issued through that bank, they provide consumers with the credit card statements, offer consumers credit, etc.
8. Nodal Account / Merchant Account
You might not directly come by this term, however, it plays an active role in the payment process through the payment gateway.
As per the RBI norms, the payment gateways need to maintain a Nodal Account / Merchant Account with the bank wherein the only balance allowed is the credit of the customers’ funds which is supposed to be debited and settled to the merchant. It cannot be used for any other purpose or any other funds. It is under the bank’s management and control.
Thus, it is a temporary place wherein the funds are kept and settled later as per the merchant account settlement cycle.
(The Merchant Account can also be referred to as the account that is registered with the payment gateway, that contains all the details and documents. It plays an important role because it is a link between the payment gateway and the merchant. For example, the bank details registered with the merchant account can only be deposited with that payment gateway transaction payments, the website URL verified with the merchant account can only be integrated, etc.)
9. Authorization
The Payment Gateway sends the authorization request to the customer’s bank to deduct the customer’s payment and after the authorization is received from the bank the same amount is deducted and being retained by Payment Gateway.
In a way, checking if the customer has enough balance in his account. An authorization is either approved or declined by the issuing bank.
10. Authentication
Bank undergoes the authentication to validate the identity of the person making the online payment. Card Number, Expiry Date, CVV, One-time Password (OTP), PIN, Password, etc are authenticated before the payment goes through. The same needs to be entered while processing the online payment.
11. Capture
Once the amount is authorized by the issuing bank and the same has been transferred to the acquiring bank, the merchant has to confirm and acknowledge that the funds belong to them, this is called the Capturing Process.
If the amount is not captured, the money is refunded to the customer’s bank.
12. Settlement
Finally, after the ‘Capture’ is done the funds are being settled to the Merchant’s bank account as per their settlement cycle (transaction date t + 1/2/3 Working Days).
In simple words, after the authentication and authorization, the funds are deducted from the issuing bank (customer’s bank) and credited to the Nodal Bank Account. Then, after the payment is captured by the merchant and it is being deducted from the Nodal Bank Account and credited to the merchant’s bank account as per the predefined settlement time period.
13. Transactions
Each payment made at the checkout of the payment gateway is known as the Transaction. It carries a unique ID known as the transaction ID or the payment ID.
14. Refunds
When the merchant reverts back the payment made by the customer, that transaction is known as the Refund, technically, the funds going back from the merchant’s bank account to the payment gateway and back to the issuing bank account is known as the refunds. Each Refund has a unique code known as the Refund ID.
The refund process is initiated by the merchant himself on the request of the customer, or sometimes due to any reason like they are unable to provide the product or services, they may initiate the refund.
It goes through a lot of processes and various parties, most of the authorization and processes are to be done manually and automation is the least. So, refunds take more time to be processed. Also, this time period varies as per the payment mode used by the customer at the time of payment.
15. Chargeback
A dispute raised by the customer with the bank is called the Chargeback. It is a provision, provided by all the banks and card issuing networks to protect buyers from online fraudulent payments or unauthorized payments. As soon as the cardholder files a chargeback, the bank reports the same to the payment gateway and they must initiate the investigation.
If the merchant fails to provide any proof within 15 days then the payment gets reversed back to the issuing account.
It generally happens due to poor product quality or service or delivery experience. It can also be filed if the customer finds any unauthorized payment activities on their card.
Well, the merchant needs to beware as there are circumstances where the customer misuses their rights of chargeback.
16. Working Days / Business Days
When it is about the banking transactions and bank payment process, it is always the ‘Business Days’. For example, when we say the settlement cycle is t+3 Working Days, it means that those 3 days will not include the bank holidays, like 2nd and 4th Saturdays, Sundays and other public bank holidays.
17. PCI DSS Compliance
The Payment Card Industry Data Security Standard (PCI DSS) is a set of security standards designed by Visa, MasterCard, Discover Financial Services, JCB International and American Express to ensure that all companies that accept, process, store or transmit credit card information maintain a secure environment.
It protects the cardholder data from any kind of sensitive information data leaking and online payment frauds.
18. Integration
It is the technical process of putting the checkout or the payment button on your website. These days, payment aggregators provide the ready Plugins and SDKs for all the available major platforms to do so. Complex coding is not required for the same.
19. MID
The Merchant Identification Number is a unique identity for all the merchant accounts given by their payment processors. You can view your merchant ID in the merchant dashboard (Merchant centre or the merchant account admin panel). It can also be located in the transaction statements. It helps at the time of communication with the payment gateway or processors and other parties.
20. TDR/MDR
The charges levied by the acquiring bank for the online transactions done through debit card and credit card is a Merchant Discount Rate (Transaction Discount Rate). It is a percentage based fee to be incurred by the merchants. The acquiring bank further distributes this fee among the payment processors, card networks, issuing bank etc, other parties involved in the transaction.
21. Order
When the customer selects a product or service to purchase and moves forward with the same at the checkout to make the payment, then an Order is created with the Merchant as well as the payment gateway.
22. Maintenance cost
A fee charged by the payment gateways as a service cost is termed as the maintenance cost. It can be an yearly or quarterly charge. Mostly, they are charged to keep up the services and to recover the maintenance costs incurred by the payment gateways.
