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How do Online Payments Actually Work?

Your business can’t afford not to accept online credit card payments. To be successful, businesses need to incorporate streamlined online payment processing. And to do that, it helps to have a basic knowledge of how online payments work.

There are three main players in any single credit card transaction. You, the merchant, your customer, and a host of complicated technology that makes the payment possible.

Let’s break that down

You, the merchant:

You need a merchant card service provider that gives you the software and equipment to process credit card payments. You also need an acquiring bank that will accept payments on your behalf and deposit them into your merchant account (your business bank account).

Your customer:

They need an issuing bank that has approved and issued a credit card with a credit facility to pay for goods and services.

The technology:

This is everything that stands between the two of you to make the transaction possible. The first is payment gateway software that links your website to the processing network.  Next comes the payment processor (your merchant card service provider), that is responsible for moving your transaction through the processing network and communicating with the different banks involved.

What happens next?

As a business owner, it is often imperative to know that the credit card payment has been approved before you provide any services or dispatch goods. The authorization process includes a number of steps that should happen in an instant:

  • Your customer types in their credit card details on your site
  • The data goes through the payment gateway (and is encrypted to keep it private and secure)
  • This encryption data reaches the issuing bank and authorization is requested
  • The issuing bank responds with “approved” or “declined”
  • The payment processor sends the data back to your website, and if the transaction was approved, then it also advises your merchant bank to credit your account

All of this in barely the blink of an eye gives you a clear idea why it is vital to have a reliable and trustworthy merchant card service provider.

The final step

The final step in the process is payment! The money gets transferred into your merchant account when the issuing bank that approved the transaction deposits the funds into your merchant account.

You can see that the process is not that complicated. Also, there are international and local laws and regulations that strictly control all credit card transactions. To ensure that you offer safe and secure credit card payments, you just partner with a merchant card service provider that offers the services and facilities that will ensure your online businesses continued success.

The provider that you choose should offer software and equipment that is supplied and installed and is completely secure and is Payment Card Industry compliant. Their web-based systems should be secured with a high level of encryption (ideally military-grade, 128 bit SSL), which will provide your website with a Secure Sockets Layer Certificate without you having to buy your own.  They should also provide an easy method of applying for an account, reasonable fees, and excellent customer service.

For more information about how online payments actually work, or to sign up for a merchant account, please call (888) 924-2743 or go to

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