Online payment processing is an essential tool for every e-commerce company. In the article, we’ll examine some of the most common terms associated with this process, as well as explain how it works and what small business ventures should know about online credit card payment processing.
Online Payments Explained
Simply put, online payments are electronic money transfers between a seller and a client through the internet. It can be done using a credit & debit card, checking account, or an e-wallet. Online payments constantly rise in popularity every day since more people use them due to their convenience.
Payment processor is a company that mediates between the seller, the bank and the buyer. The company that processes the payment is there to check the validity and authorize the payment by making sure the buyer’s bank account has enough money, the validity of their card, and the limits of the account. Once everything comes back alright, the payment is transferred to the seller. Some of the payment processing companies like PurePay also provide extra security steps for both parties to make sure the money transfer cannot be intercepted by third parties and the information can’t be stolen.
Payment gateway is the user interface of the payment processor. The payment gateway is basically what the customers see when they decide to buy a product or a service online. When they click “Pay Now” they are transferred to a secure payment gateway where they need to input the name and numbers of their credit or debit card to pay for the service or product. This form is provided by the payment processor which usually has increased security measures and encryption to ensure your information isn’t stolen. Once the data is sent over the secure payment gateway, the payment processor checks all relevant information we mentioned above and authorizes the transfer.
Merchant account is something that the online business owner must have to be able to charge credit and debit card payments on their online store. Merchant accounts are linked with the bank of the seller which is connected to a card network like Mastercard or Visa. Setting up a merchant account involves some fees that are applied to transactions but it’s paramount for succeeding in the online marketplace.
How Online Payments Work
Here’s a simple example of an entire online payment process:
- A client picks a service offered by the merchant.
- The merchant gets the order details and forwards the client to a secure page of the payment processor to check out the service.
- The client inputs the details of his card into the form and sends the payment.
- The payment then gets taken by the payment processor who forwards it to the acquiring bank.
- The acquiring bank forwards the payment to the issuing bank which verifies the details on the card and authorizes the payment. Once it’s clear, the issuing bank initiates a transfer of funds.
- When the transfer is initiated, the acquiring bank gets a green light from the issuing bank which is then forwarded to the payment processor which informs the merchant that the transaction is verified.
- When the merchant receives the news of a successful transaction he/she informs the client that everything went through and they can start working on their order.