Decoding Payment Gateway Architecture for an E-Payment System

Payment Gateway Architecture for an E-Payment System

Are you ready to accept online payments? We hope you are! If you are not yet, you are certainly missing out on the possibility of scaling your business.

According to the Reserve Bank of India’s (RBI) digital payment index, digital payments across India saw a 40% growth in September 2021.

The digital payment index by RBI measures the adoption of online transactions in the country. In September 2021, the index was at 304.06, compared to 270.59 in March 2021 and 217.74 in September 2020.

These figures clearly indicate the accelerated adoption of digital payments in the country, the credit for which can be attributed to low Internet charges and the pandemic.

If you have not enabled an e-payment system for your business, you can do so easily nowadays. All you need to do is add a payment gateway to your business website, and you are all set. However, let us first understand –

What is an e-payment system?

An e-payment system, also called an online payment system, is a system that enables you to make transactions or pay for goods and services via an electronic medium.

Over the years, the adoption of electronic payment systems has grown increasingly, especially with the increasing adoption of Internet-based shopping banking.

As a result of this increase, constant improvements, and highly secure online payments, the ratio of cash transactions has decreased substantially.

What are the different electronic payment methods?

One of the most commonly used payment methods online is credit and debit cards.

Besides these, there are other alternative payment methods like bank transfers, electronic wallets, smart cards, or even cryptocurrency (in countries where it is identified as a currency) that can be used.

Broadly, e-payment methods can be classified into the following two categories:

1. Credit payment system

A credit payment system primarily consists of:

  • Credit cards: A type of card issued by a financial institute to the cardholder that enables cashless payments online or through an electronic device.
  • E-wallets: A prepaid account, similar to a physical wallet, that stores users’ financial data, like debit and credit card information and enables online transactions.
  • Smart cards: A plastic card with a microprocessor that can be loaded with funds to enable online transactions.

2. Cash payment system

A cash payment system primarily consists of:

  • Direct debit: A type of online financial transaction wherein the account holder instructs the bank to electronically collect a specific amount of money from his account to pay for goods or services.
  • E-cash: An electronic payment system wherein a certain amount of money can be stored on a user’s device for enabling online transactions.
  • Stored-value card: A type of card wherein a certain amount of money is stored to perform the transaction in the issuer store. A typical example of this type of card would be gift cards.

Now that we have discussed all there is to know about an e-payment system, let us understand what a payment gateway is and how it works to enable e-payments on websites.

What is a payment gateway?

A payment gateway is a service that enables online payments for businesses. To put it simply, by integrating a payment gateway into an e-commerce website (for example), customers can make online payments, and businesses can accept online payments.

Payment gateway architecture explained

Before we dive deeper into the architecture of a payment gateway and how it works, let us first understand the different components involved.

  • Secure server: A server that follows the Secure Sockets Layer (SSL) protocol to enable secure online transactions
  • Encryption: A series of steps for converting data or information into secret codes
  • Acquiring bank: A financial institution that can help businesses to process debit and credit card transactions
  • Card schemes: Payment networks associated with different debit or credit cards
  • Issuing banks: Banks that issue debit or credit cards to customers

Illustrated below is the flow of how a credit or debit card transaction is processed through a payment gateway:


Step 1: A customer places an order on an e-commerce website (This is just an example. It could be any website that accepts online payments)

Step 2: The customer’s payment request is passed to the payment gateway

Step 3: The payment gateway collects the required payment information, including credit/debit card details, transaction details, etc., and stores it in secured servers

Step 4: The payment gateway transfers this information through encryption to covert it in secret code before sending it to the acquiring bank

Step 5: After receiving the encryption, the acquiring bank sends an authorization request to the card schemes. There could be two possibilities:

  • If approved, the request is processed through the issuing bank again
  • If not approved, the card schemes send back a ‘no approval message’, along with the explanation on the reason, to the acquiring bank

Step 6: If everything is successful, the issuing bank sends back the signal to the payment gateway that the transaction is successful

Step 7: The payment gateway notifies the customer about the success or failure of the payment

The payment gateway architecture is quite complex. If you want to replicate it for your online business, it will require technical resources, time and money.

Thankfully, you do not have to build the functionality on your own. You can integrate a third-party payment gateway such as the Paytm Payment Gateway.

Our payment gateway instantly enables online payments on websites while ensuring complete compliance and security of customer payment details. So, what’s stopping you?

Get Paytm Payment Gateway today!

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