Electronic Payment Process

The electronic payment process is relatively simple:

Step 1 - Point of Sale [POS]

POS terminals contain an embedded analog dial-up modem which operates through a 2-wire, analog voice-grade telephone line.

Most POS terminals operate on the asynchronous line interface; using a seven-bit data packet, odd parity, plus one stop bit interface. The parity bit is used to detect errors in transmission.

The customers swipe their debit or credit card through the POS terminal

The card reader extracts the Bank Identification Number (BIN) from the card. The BIN identifies the type of card, either debit or credit, as well as the issuing organization (VISA, MasterCard, American Express, etc.).

Step 2 - POS System

The POS system determines the network to access, based on the BIN, the telephone number(s) for that network, and other operational parameters required to complete the transaction as quickly and securely as possible.

These parameters include:

• the data transfer rate
• the line protocol - synchronous or asynchronous
• the type of encryption and the encryption key to use.

The POS terminal dials the appropriate number to a payment gateway.

Step 3 - Payment Gateway

The call is answered by the host - the two sides negotiate parameters and synchronize their modems; the "hand-shaking" process.

If the handshake is accepted - the payment data is transmitted to the gateway. The transaction is then processed, either locally or remotely.

The payment gateway serves merely as a routing and mediation service. It is often combined with payment processing, but may also act independently, as in remote processing back-end systems.

Step 4 - Payment Processor

The payment processor connects with the system where the money value is stored and confirms that adequate money value or credit allowance is available to process the transaction.

Local Processing

Local processing generally only involves the creation of a transaction log and an audit file, to provide a gross estimate of the available balance. The customer's account is batch updated at a later time.

Remote Processing

Remote processing is managed by a backend payment program, which repackages the data into an appropriate format for transmission.

The original incoming transaction is held by the payment processor while the backend transactions occur.

Remote processing can potentially add up to 30 seconds to the total transaction time.

Step 5 - Return to POS

Once processed - the system sends back an approval 'payment accepted' notification to the gateway, which routes it back to the intiating POS terminal.

The device disconnects from the line and the transaction completed.

The complete process takes around 8-12 seconds. It takes longer to process transactions that must be transmitted to another site for processing, rather than processed locally.

Higher Speed POS Modems

Higher speed modems are typically used on specialized payment and banking systems and back-office, internal transaction processing systems that require the transfer of large amounts of data.

POS modems typically are in compliance with the ITU-T V.21, V.22 and V.22bis standards, which use data rate of 300 bps, 1.2 kbps and 2.4 kbps respectively.

Other high-speed specifications include V.32bis, V.34, and V.90, which have maximum data rates of 14.4 kbps, 33.6 kbps, and 56 kbps respectively.

Electronic Payments Index

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