Payment Gateway, Payment Processor and Payment Security Explained
Summary
TLDRThis video script delves into the world of digital payments, focusing on the roles of payment gateways like PayPal and Stripe, and payment processors. It explains how these systems ensure secure transactions through encryption and tokenization, protecting payment data during transit and at rest. The script also touches on the function of payment networks such as Visa and Mastercard, and the collaboration between banks and financial institutions in the authorization and processing of transactions. The goal is to provide viewers with a comprehensive understanding of the digital payment ecosystem, setting the stage for a follow-up video on designing a payment system.
Takeaways
- 💳 Digital payments are integral to everyday transactions, from coffee purchases to splitting expenses among friends.
- 🛒 The payment gateway acts as an intermediary, ensuring payment information is correctly formatted and secure, akin to a 'Special Assistant'.
- 🔒 Data encryption is used to protect payment information during transmission, making intercepted data unreadable without the decryption key.
- 🗝️ Tokenization is employed to safeguard sensitive payment data when stored, replacing actual credit card numbers with tokens that are useless to hackers.
- 🔍 Address verification helps prevent fraud by ensuring the customer's billing address matches the bank's records.
- 🏦 The payment processor is responsible for checking the availability of funds and moving money between accounts, often working with issuing and acquiring banks.
- 🔄 Payment gateways and processors work together to authorize and process transactions, with the gateway handling data transmission and the processor ensuring funds are available.
- 💼 Companies like Visa and Mastercard facilitate communication between banks during credit and debit card transactions, but do not directly process transactions themselves.
- 🔄 The payment network ensures the transaction is authorized and securely moves money from the customer to the merchant, completing the payment process.
- 🤝 Some companies, such as Stripe and PayPal, offer both payment gateway and payment processing services, making it common for businesses to use a single provider for both needs.
- 🛡️ Security measures like encryption and tokenization work in tandem to protect against unauthorized access and fraud in the digital payment ecosystem.
Q & A
What is the primary role of a payment gateway in digital transactions?
-A payment gateway acts as the first point of contact when a customer initiates a card transaction online. It takes the payment information, verifies the details, and ensures they are correctly formatted and complete, including credit card number, expiration date, and CVV. It also handles the authorization of the transaction and the secure transfer of payment information.
How does encryption protect payment information during online transactions?
-Encryption converts the original payment data into a coded format that can only be deciphered with the proper decryption key. This ensures that even if someone intercepts the data during transmission, it would be virtually unreadable without the key.
What is tokenization and how does it differ from encryption in terms of data protection?
-Tokenization is a process where sensitive payment data is replaced with a non-sensitive equivalent, called a token, which represents the actual data. Unlike encryption, which protects data during transit and can be decrypted for processing, tokenization protects data at rest, ensuring the original data is never stored or exposed.
What is the difference between a payment gateway and a payment processor?
-A payment gateway primarily handles the transmission of payment data and acts as a bridge between the customer, merchant, and payment processor. A payment processor, on the other hand, is responsible for actually moving the money between accounts and communicates with the customer's bank to verify sufficient funds for the transaction.
What is the role of banks in the context of digital payments?
-Banks play a crucial role in verifying the availability of funds in a customer's account and authorizing transactions. They work closely with payment processors and are involved in the authorization process to confirm that the customer has the necessary funds or credit limit.
How do payment networks like Visa and Mastercard fit into the digital payment ecosystem?
-Payment networks like Visa and Mastercard facilitate communication between the issuing bank (the customer's bank) and the acquiring bank (the merchant's bank). They process transaction data and ensure that the transaction is authorized and the money is securely moved from the customer's account to the merchant's account.
What is the purpose of address verification in digital payments?
-Address verification helps to prevent fraud by ensuring that the customer's billing address matches the one on record with the bank. This adds an extra layer of security to the transaction process.
Why is it important for online stores to offer multiple payment options?
-Offering multiple payment options provides customers with flexibility and convenience, allowing them to choose the payment method that best suits their needs. This can enhance the customer experience and increase the likelihood of completing a purchase.
What factors do businesses consider when choosing a payment gateway and payment processor?
-Businesses evaluate factors such as transaction fees, types of payment methods supported, security features, customer support, and other relevant services when choosing a payment gateway and payment processor.
Can a single company perform both payment gateway and payment processing services?
-Yes, some companies, like Stripe and PayPal, perform both payment gateway and payment processing services. However, it's important to note that while many companies offer both, there are exceptions where some companies may only deal with one of these services.
How does the payment process work when a customer makes a purchase online?
-When a customer makes a purchase online, they add items to their cart and proceed to the checkout page. The payment gateway verifies the payment details, the payment processor communicates with the bank to confirm sufficient funds, and if approved, the payment network facilitates the transfer of funds from the customer's account to the merchant's account, completing the transaction.
Outlines
💳 Digital Payments and Security Overview
This paragraph introduces the concept of digital payments and their integral role in daily transactions. It explains the function of payment gateways like PayPal and Stripe, which act as intermediaries to facilitate secure online transactions. The paragraph delves into security measures such as encryption and tokenization, which protect payment information during transmission and storage, respectively. It also touches on the role of payment networks like Visa and Mastercard, and the involvement of banks in the authorization and processing of transactions. The script sets the stage for a follow-up video that will design a payment system from scratch, emphasizing the importance of understanding the fundamentals of digital payments.
🔄 The Role of Payment Gateways and Processors
The second paragraph elaborates on the roles of payment gateways and processors within the digital payment ecosystem. It clarifies the distinction between the two, with payment gateways primarily handling the authorization and secure transmission of payment information, while payment processors are responsible for moving funds between accounts after confirming the availability of funds. The paragraph also discusses the collaboration between payment gateways, processors, and payment networks like Visa and Mastercard during credit and debit card transactions. It highlights the importance of choosing the right payment gateway and processor based on factors such as fees, supported payment methods, security features, and customer support. The paragraph concludes by noting that many companies offer both services, making it common for businesses to rely on a single provider for both payment gateway and processing needs.
Mindmap
Keywords
💡Digital Payments
💡Payment Gateways
💡Payment Processors
💡Encryption
💡Tokenization
💡Credit Cards
💡Debit Cards
💡Digital Wallets
💡Visa and Mastercard
💡Issuing Bank
💡Acquiring Bank
Highlights
Digital payments are integral to daily transactions, from buying coffee to sharing expenses among friends.
The video explores the basics of digital payments, including payment gateways and processes like PayPal and Stripe.
Security aspects such as encryption and tokenization are discussed to protect payment data.
Payment networks like Visa and Mastercard and the roles of banks in the payment process are examined.
A follow-up video will design a complete payment system from scratch.
The checkout process involves specifying purchases and choosing from various payment options.
Payment gateways act as intermediaries, ensuring payment information is correctly formatted and secure.
Data encryption is used to protect payment information during transmission, making it unreadable without a decryption key.
Tokenization protects sensitive payment data when stored, using tokens instead of actual card numbers.
Encryption and tokenization work together to safeguard against unauthorized access and fraud.
Payment gateways do not check fund availability; this is done by payment processors.
Payment processors communicate with banks to verify sufficient funds and obtain transaction authorization.
Visa and Mastercard facilitate communication between issuing and acquiring banks during transactions.
Payment gateways and processors work in tandem to authorize and securely move money from customer to merchant.
Businesses choose payment gateways and processors based on fees, supported payment methods, security, and services.
Some companies like Stripe and PayPal offer both payment gateway and processor services.
Understanding the distinction between payment gateways and processors is crucial for businesses accepting payments.
Transcripts
[Music]
digital payments have become an
essential aspect of our daily lives
whether it's for a simple coffee
purchase or when you are dividing
expenses among friends in this video
we'll examine the fundamentals of
digital payments starting with payment
gateways and payment processes like
PayPal and stripe and explore some of
the interesting aspects of security such
as encryption and tokenization we'll
also look into payment networks such as
Visa or Mastercard along with the roles
of banks so that you get the complete
picture once you have grasped the
fundamentals of payments stay tuned for
a followup video where we'll design an
entire payment system from start to
finish so let's get
started imagine you are shopping online
and you see a cool video game you want
to buy you click on it and add it to
your card when you are ready to pay you
proceed to the checkout page where you
specify your purchase the online store
offers various payment options including
credit cards debit cards and digital
wallets providing you with multiple
tools for completing your game
purchase now the payment Gateway is the
first point of contact when you the
customer initiates a card transaction
online it's like a Special Assistant
that takes your payment information and
sends it to the bank to make sure you
have enough money to buy the game it
performs an initial check to ensure that
the customer's payment details are
correctly formatted and complete this
includes verifying the credit card
number expiration date and the pvv or
card verification value the payment
Gateway may also perform an address
verification to validate the customer's
bilding address matches the one on the
record with the bank which helps to
prevent fraud so it primarily handles
the authorization of the transaction and
the secure transfer of payment
information payment gateways use data
encryption during the transmission of
payment information to protect it from
interception so when you enter your
credit card information on an online
shopping website that information is
encrypted before it is transmitted to
the payment Gateway so even if someone
were to intercept the data during this
process it would be virtually unreadable
without the decryption key encryption
involves converting the original payment
data into a coded format that can only
be deciphered with the proper decryption
key and this I have covered in detail in
my https video where I talk about
various security algorithms and their
use in depth payment gateways also use
tokenization to protect sensitive
payment data when it's stored whether on
a merchant server or within the payment
Gateway system so when you have made a
purchase on an e-commerce website
instead of storing your actual credit
card number the merchant stores a token
that represents your card encryption
primarily protects data during Transit
the journey from your device to the
Gateway and then to the merchant while
tokenization protects data at rest when
it is stored on the
servers with encryption the original
data is decrypt Ed for processing once
it reaches its destination and with
tokenization the original data is never
stored or exposed in the first place
tokens are used for all future
transactions and in the event of a data
breach encrypted data might still be
vulnerable because it can be decrypted
with the right key in contrast tokenized
data is much less useful to hackers as
the actual card information is never sto
these two security measures by payment
Gateway work together to provide a
robust and their defense against
unauthorized access and fraud in the
digital payment ecosystem note that the
payment Gateway itself does not directly
check the availability of funds in the
customer's bank account that specific
fund availability check is carried out
by the payment processor during the
authorization process the payment
Gateway primarily handles the
transmission of payment data between the
customer the merchant and the payment
processor so it acts as a bridge for
data once the payment Gateway has
verified the car details it forwards the
transac action to the payment processor
the payment processor communicates with
the customer Bank to verify whether
there are sufficient funds available to
cover the transaction amount if the
funds are available the payment
processor obtains an authorization from
the bank which confirms that the
transaction can proceed if the funds are
not available the transaction is
declined and this information is sent
back to the payment Gateway which then
informs the customer or Merchant a
payment processor here is the entity
responsible for actually moving the
money between accounts it often Works
closely with the issuing bank which is
the customers bank and acquiring bank or
Merchants Bank it communicates with the
issuing bank to confirm that the
customer has the necessary funds or
credit limit now both payment gateways
and payment processors often work with
visa and MasterCard payment networks
when processing credit and debit card
transactions these companies don't
directly process transaction or serve as
payment gateways instead they partner
with banks and financial institutions
that issue their cards to
Consumers when you use a Visa or
Mastercard your transaction data is
processed through payment Network and
they facilitate the communication
between the issuing bank and the
acquiring Bank this I have covered in
detail in my previous video on buy now
pay later services and credit card
processing where I talk in detail about
issuing Bank acquiring Bank how credit
cards are issued and the role of payment
Network such as Visa or Mastercard
basically when you make a payment with a
Visa or Mastercard the payment Gateway
and payment processor work together to
transmit and process the transaction
through the respective payment Network
the network ensures that the transaction
is authorized and securely moves the
money from the customers's account to
the merchant account completing the
payment process so while payment gway
tends to play the traffic cop to approve
or reject a transaction and is the first
point of contact when customer initiates
a c transaction online payment
processors ensure your money moves from
your account to the merchant seamlessly
when a business or an online store
decides to accept payments they evaluate
and choose a payment Gateway and payment
processor this choice is based on
factors like transaction fees the types
of payment methods supported the
security features customer support and
other relevant Services now there are
some companies for instance stripe and
PayPal that perform both of these
services to the average person it might
seem like they are pretty much the same
thing but there are exceptions to this
some companies just deal with the
payment gateways while other stick to
Payment Processing however in most cases
today you will find that if a company
offers one service they will likely
offer the other service too so it is
easier to think of these two things as
two separate Services rather than being
from entirely different
[Music]
companies
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