How Online Payments Work on e-Commerce Websites

Online payment today seems a natural and easy way of payment. You go to a shopping cart, press a button – and here you go, your goods are paid for. If you are an owner of an online business, the process is more complicated. There is a series of actions instantly happening between settlement accounts of a customer and a buyer.

Payment processing is too complicated to explain in a few words. Each of the steps involved comprises a variety of functions. Merchants don’t have to know all of them, but they should generally understand how things work and are aware of what they have to do to start receiving payments online. Let’s look at what happens behind the “pay” button.

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How payments work

When users buy a product, they are transferred to a page where they need to fill in payment details, such as credit card number, date of expiration, etc. The merchant’s site redirects that data to a payment gateway (a secure server to verify and authorize payments to the merchant’s account).

After that, the authorization request from a payment gateway is sent to the acquiring bank (a bank of a merchant). The payment processing service (a company or a third party) processes transactions via credit cards or other channels to the acquiring bank account. Finally, the request goes to the issuing bank.

The issuing bank may ask for a verification. For that, it sends a notification to the processing service, and a customer enters a password or a confirmation code. A processor transfers the verification to the acquiring bank. At last, the payment gateway requests the receiver’s bank to subtract order amount from the customer’s card.

If the needed sum of money is available on the customer’s account, the requested amount of funds is confirmed. The gateway and the acquiring bank receive a confirmation so that only now the payment is done. A seller gets the money on its merchant’s account. This account works online almost like an ordinary bank account. Payment from it will be sent to your regular account within a particular time. To create this account, you need to fill in the application at your bank.

Payment gateways

Let’s make it clear. To start accepting payments on a website, a merchant needs to have an individual account and a payment gateway. A merchant account is where funds are held before being deposited into the bank account. And the payment gateway is mainly a tool to accept or decline the operation and to make a customer’s payment data protected.

A payment gateway is a kind of a bridge that connects merchants with banks and customers. Gateways are essential for secure transactions. The gateway works in the following way. When customers order something via a website, their web browser encrypts the sensitive information that will be sent from this browser to the merchant’s web server. A payment gateway receives and processes transaction data directly from the customer’s browser. Generally, the software resembles a point of sales. It securely passes the sensitive financial information from a customer to a merchant’s server and from the merchant’s server to a bank. Then a gateway informs customers whether their payment was successful or not and submits money transfer to a merchant’s account.

Regarding pricing, a merchant has to pay a transaction fee to a gateway. And because the software works only together with a merchant’s account, businesses need either to register a merchants account or use a full-service gateway. Such services carry out operations for many clients through one registered account.

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Full-service gateways

You don’t need to have a merchant’s account to implement online payments if you use a full-service gateway. Full-service solutions have some advantages for the startups. The main advantage is that they are a one-stop shop, where customers can connect a gateway, processor, and acquiring a bank. In this way, the time and effort to connect a payment gateway and a processor is minimal. Also, full-service providers, such as PayPal and Stripe enable you to start online payments right away, whereas creating an account can take a few weeks. Moreover, using this type of gateways, you need to pay only when you sell.

The most popular full-service payment gateways are Stripe, Braintree, and PayPal. Before choosing one, you can read this article: Stripe vs. Braintree vs. PayPal.

Hopefully, we shed some light on the unknown side of e-commerce and explained functions of the primary transaction parties. Still, there are many other aspects to consider, such as international payment procedures with the currency exchange and language settings, and more. Nevertheless, the next time you order stuff online, you will be aware of some meticulous processes happening during those few seconds.

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