Secure Electronic Transaction (SET)

Secure electronic transaction (SET) was an early communications protocol used by e-commerce websites to secure electronic debit and credit card payments. Secure electronic transaction was used to facilitate the secure transmission of consumer card information via electronic portals on the internet. Secure electronic transaction protocols were responsible for blocking out the personal details of card information, thus preventing merchants, hackers, and electronic thieves from accessing consumer
information.

• Secure electronic transaction was an early communications protocol that was developed in 1996 and used by e-commerce websites to secure electronic debit and credit card payments.
• Secure electronic transaction protocols allowed merchants to verify their customers’ card information without actually seeing it, thus protecting the customer against account theft, hacking, and other criminal actions.
• Other standards for digital security for online debit and credit card transactions emerged after the protocols defined by secure electronic transactions were introduced in the mid-1990s.
• Visa was an early adopter of a new standard of security protocols, called 3-D Secure, which was eventually adopted in different forms by Master card, Discover, and American Express.
• Secure electronic transaction protocols were supported by most of the major providers of electronic transactions, such as Visa and MasterCard. These protocols allowed merchants to verify their customers’ card information without actually seeing it, thus protecting the customer. The information on the cards was transferred directly to the credit card company for verification.

The process of secure electronic transactions used digital certificates that were assigned to provide electronic access to funds, whether it was a credit line or bank account. Every time a purchase was made electronically, an encrypted digital certificate was generated for participants in the transaction–the customer, merchant, and financial institution–along with matching digital keys that allowed them to confirm the certificates of the other party and verify the transaction. The algorithms used would ensure that only a party with the corresponding digital key would be able to confirm the transaction. As a result, a consumer’s credit card or bank account information could be used to complete the transaction without revealing any of their personal details, such as their account numbers. Secure electronic transactions were meant to be a form of security against account theft, hacking, and other criminal actions.

Other standards for digital security for online debit and credit card transactions emerged after the protocols defined by secure electronic transactions were introduced. Visa, one of the early proponents for secure electronic transactions, eventually adopted a different protocol, called 3-D Secure, as its framework for the secure digital payments and transactions of its customers. The 3-D Secure method is an extensible markup language (XML)-based protocol designed to be an additional security layer for online credit and debit card transactions.

What Is a Payment Gateway?

A payment gateway is a technology used by merchants to accept debit or credit card purchases from customers. The term includes not only the physical card-reading payment but also gateways in recent years have begun accepting phone-based
payments using QR codes or Near Field Communication (NFC) technology.

• Payment gateways are the consumer-facing interfaces used to collect payment information.
• In physical stores, payment gateways consist of the point of sale (POS) terminals used to accept credit card information by card or by smartphone.
• In online stores, payment gateways are the “checkout” portals used to enter credit card information or credentials for services such as PayPal.
• Payment gateways are distinct from payment processors, which use customer information to collect payments on behalf of the merchant.
• There are also payment gateways to facilitate payment in crypto currencies, such as Bitcoin.

How Payment Gateways Work

Payment gateways streamline the online payment process, acting like a secure middleman between you (the merchant) and your customers. Here’s a breakdown of how they work

1. Customer Checkout:
   • Your customer enters their payment information on your website’s checkout page. This typically includes card details like name, number, expiration date, and CVV code.
2. Encryption and Verification:
   • The payment gateway encrypts the sensitive card data to ensure its security.
   • Some gateways might also perform basic fraud checks at this stage.
3. Sending to Acquirer:
   • The encrypted information is then sent to the acquirer. This is the bank that handles your merchant account and facilitates receiving payments.
4. Authorization Request:
   • The acquirer securely transmits the data to the card networks (Visa, Mastercard, etc.) for further authorization.
5. Bank Communication:
   • The card networks contact the customer’s issuing bank (the bank that issued their credit card) to verify if they have sufficient funds and approve the transaction.
6. Approval or Decline:
   • The issuing bank sends an approval or decline message back through the card networks and acquirer.
7. Response to Merchant:
   • The payment gateway receives the response and informs you (the merchant) of the transaction status (approved or declined). The customer is also notified accordingly.
8. Settlement (Optional):
   • If approved, the payment gateway may initiate the settlement process, which typically takes a few business days. This involves transferring funds from the customer’s bank to your merchant account.

Payment Gateway vs. Payment Processor