Cash is gradually becoming a thing of the past and giving way to online payments. E-commerce platforms actively use them. However, before you connect online payments, you need to consider a number of nuances. To make the right choice, it is important to know how to process payments in general, what processing means, and what types of payments can be processed. Let’s talk about what online payments are and answer users’ main questions.
What are online payments?
Online payments are payments that go through the Internet. For this, bank cards, electronic wallets, or other payment services are used, from which funds are debited and credited. The technology for making such payments is called processing. Processing is necessary for:
- Transaction checks.
- Confirmation of withdrawals and credits of funds.
- Refusal to conduct a financial transaction.
To process payments on websites, special software is used. The transaction goes through several payment gateways. Modern technologies allow this operation to be carried out in just a few seconds. After the transaction is processed, the funds are debited from the buyer’s bank account, credited to the seller’s account, and both parties receive appropriate notifications.
Merchant processor definition
An important part of conducting and processing financial transactions is the payment processor. A payment processor is a system through which bank payments are processed. The main tasks of the payment processor are as follows:
- Acceptance of payments by the online store.
- Coordination of settlements between all parties – the buyer, the seller, and intermediary banks.
- Processing requests for authorization in the payment acceptance system (3DS).
- Processing of protocols that are necessary for accounting for financial transactions.
Also, the payment processor has another important function if the bank issuing the debit or credit card does not have its own base. In such cases, it is necessary to check the credit or debit card’s balance and control over compliance with the limit so that the buyer cannot pay for the operation if there are not enough funds in the account for this. This task is also performed by the payment processor, which checks the limit and allows or denies the transaction, depending on the account’s balance.
Special payments processing companies provide payment processors. These companies also develop the necessary software. This software connects to the site, which makes it possible to make online payments in general via the API connection.
What is a payment gateway?
Many people who are just opening or planning to open an online store confuse the concepts of a payment processor and a payment gateway. But it’s not the same. A payment gateway is a special service that processes and conducts payments. However, its main task is to check the validity of the data. The payment gateway receives certain information when making a transaction, and it checks this data. If all information is confirmed, the financial transaction is carried out. If any inaccuracy is detected, then the payment gateway rejects the operation or requests a new one.
Each user sees the payment gateway when entering data on the payment page. For example, if a customer makes a purchase using a bank card, they need to provide the following data:
- Card PAN (full card number).
- Expiration date.
- CVV code.
This is the basic data that the payment gateway checks immediately after sending the transaction for processing. The system needs to ensure that the specified card exists, works, has not expired, etc. If the client makes a mistake, the payment gateway rejects the transaction. In this case, the user needs to double-check the specified data.
If the information is confirmed, the payment gateway passes it on. In this case, all information is encrypted without fail. This is necessary so that hackers cannot intercept bank card data and use it illegally. To protect customers, special anti-fraud filters and comprehensive rules are used. The leading international payment systems like Visa and MasterCard provide a 3D Secure protection system, which implies the approval of a transaction through a banking application. However, if a fraudulent transaction does occur, there is a chargeback service that allows you to return the money.
Web payment process explained
Online payments in the modern world take just a few seconds. However, during this time, several operations take place at once. The online transaction process includes five main operations. The schema looks like this:
- The buyer makes a purchase. They indicate the details of the card or electronic wallet in the payment gateway and confirm the financial transaction.
- Encryption. After the transaction is confirmed, all information is encrypted in the payment gateway. After that, it is forwarded further along the chain to the processing center.
- Checking transaction details. The information is sent to the merchant payment processor, where it is determined whether the current request is valid. If it is valid, it is sent to the issuing bank or payment system.
- The issuing bank decides on the transaction. The bank is obliged to make sure that the financial transaction has no restrictions for execution. Such restrictions can be account blocking, lack of funds, transaction limits, etc. If there are no problems, the operation is carried out.
- The payment system requests a transfer of funds. After all the necessary approvals are received, the payment system submits a request to accept the payment. The transaction has already been approved, so the funds will be credited.
Now the payment is considered completed, and the seller of the goods receives the money to the account. The seller and the buyer also get special confirmations about debiting and crediting funds from their banks.
What types of payments can be processed?
In the modern world, there are many ways to pay for goods and services. Payment processors and gateways adapt to accept different payment methods. For example, these include:
- Bank cards. These can be debit or credit cards.
- Electronic wallets. They include popular online payment systems, such as PayPal, Apple Pay, and Google Pay services.
- Online banking. These are transfers directly through special online banking services.
- Online installment. The buyer can pay for the goods or services in installments over a certain period.
Various services for accepting online payments provide the possibility of connecting certain payment methods. Therefore, you need to decide which payments you want to accept in advance. The more methods your online store or service supports, the better.
Current online payment processing offers on the market
Today, there are both ready-made solutions from well-known companies on the market, as well as proposals for the development of custom software to perform specific tasks and integrate with existing company software. Some of the most famous companies offering pay processing software are Amazon Payments, Skrill, Stripe, PayPal, and others. They offer the following benefits:
- multicurrency payment processing;
- guaranteed performance around the world;
- possibility of customization (UI/UX);
- user-friendly interface;
- integration with shopping carts;
- full protection of personal data and more.
Is there a one-size-fits-all payment processing solution?
Unfortunately, there is no such solution that would satisfy the needs of any business. Previously, typical payment processing software was suitable for most small businesses. However, things are gradually changing, and the market for payment processing software has expanded significantly. Now every business can choose the most suitable solution.
Payment processing software for online stores differs significantly from solutions designed for financial institutions. The latter need to manage multiple channels, including ATMs, mobile transactions, POS, etc. At the same time, car rental companies need to accept payments from customers and process large transactions. Online stores that sell a small range of handmade brooches accept a certain number of small payments. Each industry has its own characteristics related to the efficiency of business processes.
