The content of this article is provided for informational purposes only. You should always obtain independent business, tax, financial, and legal advice before making any business decision.
As online shopping increases, many businesses are setting up digital shops to accept payments online and capture more sales. But after a customer hits "check out", how does the money get to you?
Whether you’re expanding a brick-and-mortar business to accept payments online or starting a new venture from the ground up, it’s important to understand how online payment processing really works — who's involved, how you get paid, and which processing fees apply. That way, you’ll be prepared with a plan that is suitable for you and your business.
In this guide, we’ll cover the basics of payment processors for websites and e-commerce operations, from how it works to the many benefits.
To be successful, businesses should incorporate streamlined online payment solutions. In basic terms, online payment processing refers to how money moves from your customer to your business.
Though this may sound simple, many moving parts are involved in processing credit and debit card payments, whether online, via phone sales, or even in person. On one end is you, the business owner or merchant account. On the other end is your customer. And in between is a lot of technology that connects the two of you.
The main moving part of online payment processing is the merchant — in this case you or your business. However, to accept credit and debit card payments from online customers, you will likely need to partner with one of the many available merchant account providers, including our PayPal merchant account.
This provider (sometimes called an acquirer) accepts payments on your behalf and deposits them into the business merchant account you hold with them. For instance, you can accept online payments with PayPal.
Wondering what is a payment processor? Payment processors (or merchant account services) handle all the heavy lifting in online payment processing — from moving the transaction through the processing network to sending you a billing statement, and then working with your bank to ensure you get paid. In other words, everything it takes to process online payments.
Often, your merchant bank is also your online payment processor, which helps simplify things.
One of the technologies involved in online payment processing that enable you and your customer to transact is the payment gateway. This is software that links your site's shopping cart to the processing network.
For your customers to pay for your goods and services, they need a credit or debit card in most cases. The bank that approves the card (and lends them the cash to pay you) is called the issuing bank.
Online payment systems offer convenient, quick, and secure transactions, leading to improved customer experiences, efficient record-keeping, and helpful integration capabilities.
Adopting these systems can optimise payment processes and contribute to the overall growth and success of a business in the digital age.
Here are some advantages:
Online card processing systems provide a convenient and accessible way for customers to make purchases from the comfort of their homes or on the go. It eliminates the need for physical visits to stores or carrying cash, offering a seamless and hassle-free payment experience.
By accepting online payments, businesses can reach a broader customer base beyond their local area. Online platforms enable businesses to cater to customers from different regions and even international markets.
Online payments are typically processed swiftly, allowing for faster transaction completion compared to traditional payment methods.
Online payment systems often employ advanced security measures to protect customer information.
Online payment systems offer a seamless and user-friendly interface for customers to complete transactions with features like saved payment information, one-click purchases, and automated recurring billing options.
Many online payment processing systems integrate with other business software and systems, such as e-commerce platforms, inventory management, and customer relationship management (CRM) systems.
As a business owner, it’s helpful to understand exactly what it looks like to process online payments. Or, in other words, how money moves from your customer to your business.
There are two stages to online payment processing: the authorisation (approving the sale), and the settlement (getting the money in your account).
When it comes to how card processing works, the authorisation process goes roughly like this:
In terms of online payments, all of the above takes place within one to two seconds in most cases.
The second piece of the online payment system process (where you get paid) is the settlement:
The settlement process can take a few days. Sometimes, your bank lets you access your money before it’s even sent to them. They also may keep a portion in your account that you can’t touch – just in case the customer returns the item later (called a reserve in payments).
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