Online payment processing is the process of transferring cash between the buyer and seller over an electronic network. It includes a series of digital transactions. The procedures are initiated by either a buyer or a seller on some type of website that allows for online payment processing. Keep reading to learn how does online payment work.
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What Is Online Payment Processing?
Online payment processing is another way for sellers to connect to buyers and get paid quickly, easily, and securely – even if they don’t have access to the traditional currency from their local country. Online payment services handle all that complicated stuff for you and take care of everything in such a way that it should make your life easier without compromising security or convenience.
In addition, there are advanced services, like Solidgate, a global fintech company, that provide businesses with all-purpose payment processing solutions for no-fuss online purchases. To understand how it works, let’s explore three main components in online payment processing to work correctly.
Payment Processor
The payment processor is the part of the transaction that makes sure everything goes smoothly. The payment processor manages all your account details, including authorization, settlement, and reconciliation. Basically, it isn’t a business in itself but a software program that stores information about your transactions and then sends payments to the right party at the right time. Generally, it’s like a middleman between the bank and the merchant.
Payment Gateway
The payment gateway is an electronic module that handles various processes for online payment processing, including authorization and settlement. This is usually a computer program, either hosted on-site or in the cloud (hosted by a third party), that provides services for one or more payment processors. There are different types of payment gateways that can be used for different types of transactions.
Merchant Account
A merchant account is a service provided by a bank or other organization that allows merchants to accept payments over the internet using the payment processor’s service. This can be done through a secure connection or by sharing an account number and password with the payment processor.
Once again, it’s not the business in itself but a software program that stores information about your transactions and then sends payments to the right party at the right time, focusing on security, speed, and efficiency. In other words, this is a type of bank account that gives you an opportunity to accept online payments.
How Online Payment Processing Works
The following is the process that takes place when a buyer wants to purchase any goods or services online.
- The Customer Picks Up An Item Completes The Checkout Process – The customer goes to a website where they would like to purchase an item. They pick out the item they want, and then they go through the checkout process. This can include filling out billing information and shipping information if need be.
- The Card Information Is Transferred To The Payment Gateway – After the checkout page is completed, the information is transferred to a payment gateway that will then transfer it to a processor.
- The Payment Gateway Securely Sends The Transaction To The Processor – This is the point where information is sent that allows the buyer to pay in a secure and organized way.
- The Processor Verifies And Approves The Transaction – The processor will then verify the information by going through various means to make sure that everything is in order. They will confirm the credit card details, make sure the expiration date matches what is on file for that card, and integrate any additional information that needs to be provided to complete the transaction so it can be sent to their bank or bank of their choice.
- The Customer’s Bank Sends Money To The Processor – After this process, the processor will notify the customer’s bank that the transaction has been completed and approved. The money will be transferred to the processor, and it will then be sent to the customer’s bank. This can also include any additional verification that may be needed.
- The Processor Sends Money To The Merchant’s Bank – The processor will then send the money to the merchant’s bank, and they will then reply back to the processor and permit them to complete the transaction. The processor will then send information back to the customer that they are good to go, assuming no issues were found.
- The Merchant Receives The Message Of Approval Or Denial – When the processor gives the merchant their approval, they will send the funds to their merchant’s bank account. If the transaction is denied, the money will be sent back to the customer’s account.
- The Merchant Receives The Money For The Sold Item – After the bank confirms and approves the transaction, the merchant will receive confirmation that the money has been transferred to them and that it is safe to assume that it is theirs. They can then go through with completing any additional steps that they may need to do to complete this process.
The Bottom Line
This is how all online payment processing works. This can go many ways, but this is a general layout that applies to almost every case. This also includes how credit card information, as well as other important details, is transferred through a secure channel. It also shows how the customer’s bank sends the money to the merchant’s bank and how the merchant will receive that approval or denial message.
The most important part of this process is how the money is received and sent. Secure channels are very necessary when working with sensitive information. The customer needs to be sure that their information will not be shared and used in other areas. Since the merchant receives the money, it becomes their responsibility and the processor’s responsibility to make sure they are receiving the funds they deserve. As you can see, there are many intricacies of online payment processing, and it is all based on security, currency exchange, and insurance.
