Working of a Payment System

Understand the working of the payment ecosystem and the role of the payment gateway within it.

In today's era, fintech advancement has paved the way for digital marketing and e-commerce businesses. It has brought together and enhanced the trust between merchants and customers, where the customer buys goods and pays the merchants in just a few clicks. Contemporary entities in the payment processing cycle are radically changing the customer experience and making it possible for merchants to run their operations with a great deal of simplicity, unlike in the past when it was just about facilitating the transfer of funds.

In this lesson, we will describe the digital payment system and explain how a payment gateway has made the payment process easier in the modern world.

The payment process

Online payment takes a few seconds. A customer simply has to enter their credit card details to pay online for the goods or services they want to buy. However, this is a very complex process that entails multiple steps and interacting entities—for example, cardholder verification, payment processing and validation, merchants registration, and so on.

The following figure illustrates the flow of a payment processing system:

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