How do recurring payments work with payment gateway provider?

Hi All!
I've setup PayPal Website Payments Pro for Consolidated Billing and been asked a question about "reference payments" by PayPal.
When a person purchases a recurring product in a BC shop OR "upgrades / pushes live" their BC site; how does the recurring payment get collected?
Which of the following does BC perform:
OPTION 1: Send a request to payment gateway to ask them to setup recurring payment to the client who's just made a payment; using the gateway's own engine.
OPTION 2: BC automatically recharges the client for the next period via a single automated payment using a 'credit card token', through the payment gateway. i.e. not using recurring payment facility on gateway own engine.
If it is OPTION 2, my understanding is that this is a 'reference payment' and we need to inform PayPal that this needs to be made available on our account.
Regards
Mike

Hi Mike,
As long as the gateway is on our approved list to handle recurring within BC it would fall under option 2.  If the product or item incurs a cycle type requiring recurring billing BC will take the client transaction token and will re-initiate billing based on the recurring cycle in which the gateway will process. 
For more details on how recurring works please view the article below.
- http://kb.worldsecuresystems.com/kb/recurring-billing.html
Kind regards,
-Sidney

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