Payment Gateways: What Happens When You Make Online Payments

A quick guide to what happens when you make online payments through payment gateways.

Since the Central Bank's cashless policy of 2012, online payments have been on the rise in Nigeria. Now, it takes less than 60 seconds to carry out a transaction on your phone in Nigeria.

It could be a bank transfer, a wallet transfer or a payment through a payment gateway. You could even be funding your stocks or investment account.

Here is what happens when you make payments with a payment gateway within those 60 seconds𑁋from the checkout page on your favourite store to the thank you page.

What are Payment Gateways?

The technology that merchants (businesses) use to receive payments securely from customers is known as payment gateway.

Popular payment gateways in Nigeria include Remita, Flutterwave, Paystack, Interswitch etc. Most of these gateways offer businesses the five popular payment methods in Nigeria-

What happens when you make payment through a payment gateway?

Many things happen on the back and front end when a customer completes a transaction and pays for a product or service.

When you decide to make payment through the payment gateway of your favourite e-commerce website or Instagram store, there are steps taken behind the scenes that determine whether your payment is successful or not.

1. When you make payment via card details on a payment gateway

  • At checkout, you enter your card details on the payment page and merchant’s website sends encrypted payment details to payment gateway.
  • The payment gateway reviews your card details, performs fraud checks, and sends the payment date to the merchant’s bank.
  • The merchant bank reviews the payment data and sends it to the card scheme (VISA, Mastercard).
  • The card scheme scans for payment data security checks and authorizes the payment. Once confirmed, the approved or declined payment message is sent back to the merchant bank.
  • The merchant bank sends the message to the payment gateway who informs the customer (you) that the transaction is successfully completed or declined. The payment gateway also sends the message to the merchant.
  • If the transaction is approved, you will be redirected to a confirmation page (or a Thank You page). If not, the customer will be asked to choose another payment option on the website.

2. When you make payment via wallet method on a payment gateway

If you decide to choose the wallet payment method on the payment gateway, here is what happens:

  • You load money into your wallet e.g. PiggyVest, Risevest, Bamboo, Brass, etc from your bank account
  • The money is debited from your bank account and credited to the wallet provider’s accounts
  • The wallet provider has a record of all accounts in its system. When a transfer happens between your wallet and the merchant's wallet, money is deducted from your wallet account and added to the merchant's wallet.

3. When you make payment via interbank transfers on a payment gateway

We can’t discuss interbank transfers in Nigeria without mentioning NIBSS and NIP.

NIBSS (The Nigerian Interbank Settlement System) is an online real-time banking infrastructure that ensures the smooth settlement and transfer of funds from one bank to another.

NIP (NIBSS Instant Pay) helps beneficiaries receive their funds immediately after the transaction is processed. NIP enables financial institutions to provide electronic transfer services to their customers on multiple digital channels.

With payment gateways, a customer can transfer funds to the merchant using their mobile banking app, and the merchant would receive it instantly.

These interactions happen in less than five seconds𑁋from the moment you input your card details to the Thank You page.

Bottom line

While these payments seem easy and flexible on the surface, structures behind the scenes ensure they are carried out seamlessly. Payment gateways have fraud checks to ensure the card details are legitimate; interbank transfers use NIBSS to ensure quick processing and settlements.

These structures are essential to the FinTech ecosystem and increase the ease of doing business digitally. With financial services leveraging these payment solutions for their customers, innovation isn’t far behind.

If you’re looking to build a product or feature in your app that allows your customers to send and receive money instantly, or if you want to avoid provider downtimes by enabling multiple payment gateways securely for your business , Bloc’s got you covered.

Toluwanimi Olubanke