A payment undergoes two main stages when transacted over a payment gateway: processing and the settlement.
Processing implies approving the sale, and the process kicks off when the shopper inputs their payment details and clicks Buy.
The payment information is encrypted by the payment gateway and sent to the payment processor.
The payment processor contacts the issuing bank and requests an approval for the funds.
The issuing bank replies with an approval or decline.
The payment processor informs the merchant and the merchant’s bank of the response.
If there is a one-step process using Sale, then the amount of the payment can be Settled
If there is a two-step process using Authorization and Capture,
The merchant will deliver the goods and inform the payment gateway
The gateway will inform the payment processor with a similar request made for authorization
The issuing bank will begin the transfer of funds that will be ready to be settled
Settlement for an online payment implies getting paid, a process which can take several days. The bank will settle with the payment gateway, who in turn will settle the funds with the merchant.
