Payment Gateway is a financial service and is provided via an e-commerce application service provider. We all know about that the popularity of online shopping in India is majorly due to the ease and flexibility that this platform offers.
Besides, even the payment of bills, recharges, etc., has taken the online route. When we purchase something online or pay a bill, when we click on “pay now”, we are directed to a new page. This is the payment gateway site of the website on which we are making the payment for goods/services.
The payment gateway acts as an intermediary between the website that facilitate the communication of transaction information and the banks. It produces the information from the buyer bank and supplies this information to the receiving bank and notes its feedback as to whether the transaction has ben approved or declined.
Once a customer has placed an order from an online portal, there are a serious of tasks that are conducted by the Payment Gateway which are discussed as follows:
The browser used by the customer encrypts the data that has to be sent to the vendor’s server. The payment gateway then sends the transaction data to the payment processor.
Once the payment processor receives the data, it transmits the same to the card association. The Bank that has issued the card checks the transaction at this point and denies or agrees to it, accordingly.
Filling the Order
If the Bank agrees to the transaction, the authorization relating to the customer and the merchant is forwarded to the processor of the Payment Gateway.
After response from the processor is received, the same is transmitted to the website for processing of the payment. This way the information is interpreted and the payment is generated. The entire process of payment takes time of a few seconds only.
Apart from facilitating quick payments, the `payment gateways also offer the following services:
The main components of the Payment Gateway are:
This is the contract between the payment service provider and the business. Each party that is involved in the online transactions is guided by the responsibilities and the rules that have been mentioned under this agreement, in context to acceptance of payment, authorization, processing and settlement.
Secure Electronic Transaction (SET)
Secure Electronic Transactions are provided by the main providers of the electronic transactions, like Visa and MasterCard. The customers are protected by way of SET as it allows the merchants to verify the payment information without actually seeing it. The information on the card is directly received by the card issuer for verification.
The Payment and Settlement System Act, 2007 (PSS Act) was enacted for the purpose of regulation and supervision of payments system in India by the Reserve Bank of India, which shall be the primary authority for the purposes and all the matters that fall under the purview of this Act. There are two regulations that have been made under this Act by the RBI, namely:
As per Section 4 of the PSS Act, no person except the RBI can either operate or commence a payment system until it has received authorization from the RBI. Application for authorization to the RBI is required to be made under Section 5 of the PSS Act.
Note - The compliance with Payment Card Industry Data Security Standard (PCI DSS) is one of most important compliances required by the Payment Gateway Business. PCI DSS consists of widely accepted set of rules and regulations which are focused towards optimizing the security of the online transactions and protect the cardholders from fraud. Its aim is to improve payment account security in the entire process of online transactions. Getting a payment gateway license is very hard since it requires fulfilling certain software related compliances as well apart from the regulatory compliances.
For obtaining Payment Gateway License in India follow the steps described below:
Step 1: File an applicationin the prescribed Form A as per Section 5(1) of the PSS Act. This application shall be made to the Chief General Manager of Department of Payment and Settlement Systems at Central Offices of the RBI at Mumbai, or such other offices of the RBI as may be specified by it from time to time.
Step 2:As per Section 6, the RBI’s approval for granting the authorization is discretionary. The RBI has the power to hold such inquiries as it may consider necessary for the purpose of satisfying itself about the authenticity of the details that have been submitted by the applicant and for checking the credentials of the involved participants.
Step 3:The RBI shall take the following conditions into account before issuing the authorization:
Step 4:If RBI is satisfied that all the requirements a laid down in Section 7(1) are fulfilled, it may issue the Authorization Certificate in Form ‘B’ for commencing and carrying on a payment system to the applicant. The authorization shall take effect from the date as mentioned by the RBI and as per the conditions that have been imposed by the RBI.
Step 5:As per Section 4 of the PSS Act, the RBI is required to process the application of authorization at the earliest with a maximum time limit of six months from the date on which the application for authorization has been filed.
Vide its circular dated September 24, 2015 has granted permission Authorized Category Dealers- I Banks to offer the facility of payment for imports, for facilitating e-commerce. For this, the said Banks will have to enter into standing arrangements with the Online Payment Gateway Service Providers (OPGSPs).
PCI DSS stands for Payment Card Industry Data Security Standard. It is a consolidated set of procedures and policies that is focused on optimization of security of transactions – credit, debit and cash card. It also aims at protection of cardholders against the misappropriation of their personal information.
Payment Gateway service providers charge nominal fee from the online sellers for offering their services. Usually, all the payment gateways provide the sellers with merchant accounts.
Merchant Account is required for accepting payments via debit/credit card through the internet. Hence, a merchant account is required if processing of transactions is required via websites. A merchant account is required along with payment gateway for processing transactions.
Once compliance has been made with PCI DSS procedures and policies, the next step is to Payment Facilitator with various banks such as ICICI, HDFC, Citi, etc. The banks will approve the application depending upon the applicant’s financial reliability and standing. Once the application is approved, the applicant will then be allowed to sign up merchants on the bank’s behalf.
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