The Basics Of Online Payment Processing

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As more and more customers prefer online shopping over traditional retail, businesses are following suit. However, in order to accept online transactions, a merchant must include online payment processing through the best online payment gateway.

In this article, we will go over exactly what online payment processing is, what components and third parties it includes, how it works, and which types of businesses it is best suited for.

What is an online payment processing?
There are three basic payment methods. The first is the most traditional, and it is known as a payment-in-kind or barter system. The second one refers to money in hand, which is why cash and checks are the most common. Electronic payments, such as credit and debit card methods, electronic wallets, and online checking accounts, are the third type.
Online payment processing is a type of electronic payment. It facilitates the online exchange of money as well as the purchase of goods and services. When electronic payment processing is initiated, online payment processing is activated.

To be able to accept payments online a merchant ...
... must be engaged in the system of online payment processing. When it comes to card payment processing, the procedure is quite complex, despite its appearance. It involves more than just a direct relationship between a customer and a merchant. Bank institutions, card associations, payment gateways, and payment processors are all part of the eCommerce payment processing chain. We are about to clarify each mentioned party's role.

Merchant account
According to banking payment rules, money from any electronic transaction cannot be directly transferred into a business account. They are first routed to a special merchant account and then redirected to a business account. As a result, a merchant account is required for accepting online payments.

Two institutions can issue a merchant account. The first is an acquiring bank, which can open a merchant account for a retail or online business. The second type is a payment provider service, which is a third-party payment processing service that operates solely online on behalf of an acquiring bank.

Acquiring bank
An acquiring bank is a financial institution that provides merchant accounts. Acquiring banks are in charge of processing credit and debit cards for businesses.

Payment gateway
A payment gateway is an online version of a POS device. It establishes a virtual connection between a merchant's website and a payment processor, handling all technical aspects of each transaction. The payment gateway is also in charge of transferring funds to a merchant account.
When using a payment service provider, the company may receive an online payment gateway that is integrated with a merchant account. This simplifies the process of opening a merchant account and keeps fees low. Check out our article on merchant accounts to learn more about the benefits of using a payment service provider.

Payment processor
A payment processor handles the entire transaction flow. It verifies the customer's card limits, credit card validity, security points, and fund availability. If the verification is successful, the payment is processed; otherwise, it is declined on a reasonable basis.

Card association
Card associations are a large network of issuing and acquiring banks that process payment cards of various brands. Visa, MasterCard, and American Express are the most well-known brands.

Issuing bank
An issuing bank is a financial institution that issues payment cards branded by one of the card associations to customers. Issuing banks enable consumers to participate in global payment processing, digitally purchase goods and services, and conduct transactions at retailers.
Each party has a specific role to play in the process, but the overall goal is the same: to make a transaction secure and valid. Now that the roles of each party in online payment processing are clear, we can look at how the payment processing actually works.

How does online payment processing work
Completing a transaction typically takes a few seconds, and payment processing occurs on the merchant's website at the same time. It transfers payment information between participants step by step until the transaction is completed or declined.

◉ It all begins with the customer's purchase. When a customer enters billing and shipping information and confirms an order, online payment processing begins.
◉ The personal data is encrypted and transferred to the payment gateway, where it is routed to the payment processor.
◉ The information is sent to an acquiring bank by the payment processor.
◉ The acquiring bank makes contact with the card association for the specific payment.
◉ Card association via the inner network addresses the customer's card's issuing bank.
◉ The issuing bank responds to a customer's identification, fund availability, purchase restriction, and security check.
◉ The payment processor transfers funds to the merchant account and notifies a payment gateway of the transaction's status.
◉ The response can be either approval or denial of the transaction. In the event of a denial, the reason will be sent to both the merchant and the customer.
◉ The message is delivered to both the merchant and the customer by the online payment gateway India.
◉ On the merchant account, funds are received.

Who benefits from online payment processing?
In fact, depending on the size of the business, online payment processing would not differ significantly. Payment processing for small, medium, and large businesses would produce nearly identical results. In other words, online payment processing enables a business to operate online and tap into a larger market. As a result, small business payment processing is just as useful as large business payment processing.

However, there is a distinction between a high-risk and a low-risk business. As previously stated, a merchant account can be issued by either an acquiring bank or a payment provider service. Opening a merchant account with an acquiring bank is more difficult for a high-risk business. Despite its vertical, payment provider services are more flexible in accepting different types of business.

Know more about SifiPay, please visit www.sifipay.com.