Online Payment Service Changing the Landscape of Digital Payments
An online payment service authorizes card transactions over the internet. The customer enters card details, the gateway passes them to the processor, the card network verifies them, and the issuing bank approves or declines based on available funds. Merchants pay a discount rate of roughly 2% to 3% per sale plus a monthly gateway fee.
Scope: For merchants new to accepting payments online, covering how an online card transaction flows from checkout to settlement and the fees involved.
Why Merchants Are Moving to Online Payment Services
Online payment services are leading online business forward. Are you tired of using traditional payment modes? Are you looking for something innovative through which you can do a lot more? You are not the only one who wants improvements in the payment system. Merchants across the globe faced a lot of problems after the arrival of the coronavirus. The pandemic encumbered the growth of small merchants' businesses: merchants were not getting enough customers, and cash flow in the business was also going down.
In the modern era, it is very important to know everything about online payment services. Merchants across the globe have started using them. According to a survey cited at the time, small merchants who paired their business with such online services observed a remarkable rise in overall sales, while merchants sticking to offline transactions struggled. Merchants relying only on physical payment equipment also faced problems.
Customers gave full preference to contactless transactions because people were not leaving their houses during the pandemic. If you have not yet embraced online platforms, you risk ending up like those struggling businesses. If you are planning to make an online shift, understanding the process below is the right place to start.
How an Online Payment Transaction Works
If you as a merchant are completely new to this ecosystem, you might be confused in the beginning. Before getting into the process, you must know the important agents that work behind the scenes.
An online gateway is a service provided by the payment processor. It authorizes the online transaction and sends the card details and other important information to the merchant processor.
The transaction process works as follows:
• The customer enters their credit or debit card details after placing the order.
• The merchant processor receives the transaction details through the online gateway. The card processor submits the data to the network that issued the card, such as Mastercard or Visa.
• The card network checks all the details. After checking them, the network forwards the details to the bank that issued the card to the customer.
• The issuing bank receives the information from the card network and checks whether the customer has enough funds available in the account. If the customer does not have enough balance, the bank declines the transaction; if they do, the bank approves it.
• The bank then forwards its decision back to the network that issued the transaction card.
• The network forwards the details to the merchant's payment processor, and the merchant receives the transaction amount in their bank account.
Fees Associated with Online Payment Services
There are different fees inextricably associated with an online payment service. No matter which payment provider you use, you will pay these charges.
The card processor retains a certain percentage from each sale. This is called the discount rate, and it can be anything between 2% and 3%.
The online gateway plays a very important role in card transactions, so you will also pay a gateway fee. It is a monthly fee charged by your payment processor. The gateway keeps card details in encrypted form, so you do not have to deal with fraudulent activity.
Choosing the Right Payment Processor
For enabling an online payment service, choosing the best payment processor for your business is very important. Otherwise, you will not achieve satisfactory results.
RapidCents is one of the platforms that provides online payment services for internet businesses. If you are running an online business, pairing it with a processor like RapidCents gives you the gateway, encryption, and card processing pieces covered in this article in a single place.
Frequently asked questions
How does an online payment transaction work step by step?
The customer enters card details at checkout, the gateway sends them to the processor, and the processor submits them to the card network such as Visa or Mastercard. The network passes the details to the issuing bank, which approves or declines based on available funds, and the approved amount is settled to the merchant's bank account.
What is an online payment gateway?
An online gateway is a service provided by the payment processor. It authorizes the online transaction, forwards card details to the merchant processor, and stores those details in encrypted form to protect against fraud.
What fees do merchants pay for online payment services?
Merchants pay a discount rate, the percentage the card processor retains from each sale, typically between 2% and 3%. They also pay a monthly gateway fee to the payment processor for authorizing and encrypting transactions.
Why do online card payments get declined?
During authorization, the issuing bank checks whether the customer has enough funds available in the account. If the balance is insufficient, the bank declines the transaction; if funds are available, it approves the payment.
