Many business entities are built with innovative ideas, frameworks, and processes that offer high scope to elevate the company to different levels. Therefore, if one is not aware of the operational standpoint of digital solutions, one can easily get misdirected in the fintech industry.
As part of the fintech pool of technology, payment solutions are the essential competitive niche with strong ideologies already in place. These systems are powered by two dynamic, mighty players called the payment gateway and the payment Switch. Despite being invisible to the human eye, this duo is at the centre of every scalable payment method today’s banks and businesses seek to deploy.
What is a Payment Gateway?
Payment gateways may cover the entire transaction process, from security to settlement, from beginning to end. Also known as a facilitator of payments, they serve as an online digital cashier that collects payments, charges, verifies, and distributes deliverables.
Simply put, payment Gateway is developed and launched by fintechs to allow merchants (businesses) to accept payments on their selling platforms, online or offline. They are third-party software that sits between businesses (merchant selling platforms) and banks.
As a result of this software, the user (customer) has the ability to submit sensitive information to the merchant (card numbers, passwords, PINs) in exchange for the goods promised. The payment gateway validates submitted information, checks for fund availability, and deducts the funds. Thereafter, the funds are transferred to the merchant’s account within 1–2 business days of the products being shipped or delivered.
In the seller platform, the payment gateway includes powerful coding lines that enable users to request payment transactions. The steps are as follows:
- Accepts the payment request.
- Validates the details on the user’s card or submitted account.
- Check for fund availability.
- Processes the transaction.
- Transfers the funds to the acquirer bank account (merchant bank account)
What Is A Payment Switch?
A payment switch is also a technology, but it is integrated into payment gateways. It functions as an independent entity that sits inside the payment gateway to facilitate payment processing.
An OLTP (online transaction processing task) payment switch handles all the nuances within a transaction. For instance, the payment gateway manages the transaction. In that case, the switch oversees the actual payment processing.
Multiple merchant accounts are connected to their bank (acquirer bank) through a payment gateway. Consequently, when a payment request arrives from a merchant selling platform, switch dynamically identifies the acquirer bank (associated with that merchant) and the issuing bank for that specific request through the BIN allocation process and then authorizes the transaction to proceed securely.
Among the many ways the payment switch can route a transaction is by allocating a BIN (Bank Identification Number). Other routing options include routing by amount and routing by time of day. Upon receiving the message from the issuing bank, it formats and sends back the response to the acquirer.
In essence, a payment switch is a flexible entity that interfaces with a payment gateway to accept the payment request and initiate the transaction:
- Receives the validated payment request from the Payment Gateway.
- Review the merchant rules for the transaction process.
- Determines the payment service provider (PSP) for the payment request.
- Switches the transaction according to a BIN (Bank Identification Number) allotment associated with a particular PSP.
- Processes the transaction based on failure or success.
Benefits of a Payment Switch:
- Highly Scalable
- Dynamic routing
- Fewer outages’ issues
- No more connectivity time-out
- Using encrypted BIN (Bank Identification Number) allocations ensures security and eliminates fraud risks.
- Allows extension of payment networks.
From supporting an individual bank’s standalone ATM/POS network to integrating with other domestic and international networks and running national switches, this solution operates in a wide range of environments. Payment switches will, therefore, remain relevant in spite of intense competition from banks to offer the fastest and most secure payment methods.