Online Payment Platform Basics: Everything You Need to Know
So you’ve finally decided to set up shop online. Congratulations! You have joined a global marketplace that will be worth $6.38 trillion by 2024. After building your website and picking an ecommerce platform, now comes the hard part. From payment gateways to processors, which online payment platform or solution do you need to accept electronic transactions?
Electronic transactions seem like a quick and simple operation. But there are many parties and complex financial technologies that work behind the scenes to help you accept online payments.
As a merchant, it’s important to understand how the online payments system works so you can better address business needs and problems.
In this post, SeamlessChex will discuss what payment gateways and platforms are, describe how they work, and explain why you need one:
The Key Players of Online Payments
Many merchants process online payments without knowing what goes on behind the scenes. Before we walk you through a crash course on online payment platforms, you need to know the key parties that are involved in processing electronic transactions. These six players make online payments possible:
Also known as the customer or payer, this is the party that buys a business’s products or services using their credit card. The cardholder is the player that initiates a transaction.
This is you ⏤ a business or organization ⏤ that offers valuable goods or services for sale to customers. The merchant is the payee party that receives payment from the cardholder.
The Payment Gateway
A payment gateway platform is a software tool that connects your business to the electronic payments system. An essential component of online payment platforms, gateways facilitate secure electronic transactions. The gateway captures cardholder data, encrypts the information, transmits anonymized data to/from the payment network, and authorizes transactions.
The Payment Processor
Payment processors are third-party companies that handle online financial transactions between a payer and payee. After receiving cardholder data from the gateway, the processor forwards them to the payer’s bank and card company for verification. Once the data is confirmed, the processor approves the transaction and transfers the funds to the merchant’s bank.
The Issuing Bank
The issuing bank is an institution that offers consumers debit and credit cards on behalf of the card network. Along with offering payment cards, issuing banks are also responsible for providing funds in an online payment platform system. Issuers release payment from a customer’s account and transfer the funds to the merchant’s acquirer.
The acquirer ⏤ also known as the merchant account provider ⏤ is a bank or financial institution that manages a business’s credit card transactions. Acquirers request payments from issuing banks and deposit the funds into the business’s merchant account. While acquirers and processors are separate parties, many online payment solutions combine these entities into a single platform.
What is an Online Payment Platform?
By now, you should have learned that having a merchant account, payment gateway platform, and payment processor are necessary to accept online transactions. You can obtain each of these services separately and integrate them into your ecommerce system. Or you can make your life easier and get an all-in-one payment platform.
An all-in-one online payment platform like Seamless Merchant combines merchant services, payment processing, and a payment gateway into one convenient solution. By eliminating multiple parties and systems, a fully integrated platform streamlines online payment processing and makes your transactions more efficient.
How Does Online Payment Processing Work?
After identifying the key players of electronic transactions and explaining what an online payment solution is, it’s now time to describe how payment platforms transfer funds from a customer’s account to your business account. Although the process is very complicated, keep in mind that the entire operation takes no more than two seconds!
Here is an in-depth, behind-the-scenes look into how online payment platforms process electronic transactions:
- After completing the checkout process, the customer enters their credit card details on your payment page
- The merchant forwards the customer’s card details to their payment gateway platform
- The gateway encrypts or tokenizes the card data and then sends the anonymized information to the payment processor
- The online payment platform’s processor transfers the data to the credit card network to verify payments information
- Once verification is complete, the card network sends an authorization request to the customer’s issuing bank to release transaction funds
- The issuing bank receives the authorization request, checks whether sufficient debit or credit is available, then sends an “approved” or “declined” response to the payment platform’s gateway
- The payment gateway forwards the response to the merchant and the cardholder
- If the transaction is approved, the payment processor requests a transfer of funds from the customer’s issuing bank
- The issuing bank sends the funds to the merchant’s online payment platform
- The platform’s processor deposits the money into the merchant’s business bank account
The complexities of payment gateways, platforms, and processors can fry your brain but they’re a necessity in today’s digital economy. While online shopping was on the rise before COVID, the pandemic has made ecommerce the new normal for obtaining goods and services. Ecommerce will continue to grow as consumers enjoy the ease, convenience, and efficiency of online buying.
In 2019, 1.92 billion people around the world bought goods and services online. That number is expected to grow to more than 2.14 billion digital buyers by the end of 2021. Having an online payment platform is essential to help you process electronic transactions from an ever-growing number of digital shoppers. An online payment solution can enlarge your customer base, and take your business global.
Go Global With Seamless Merchant
Establishing an online presence is no longer a luxury but a necessity for today’s businesses. From buying groceries to attending a virtual doctor’s appointment, more and more people are relying on the internet to meet their needs. An online payment platform can help you sell your goods and services to anyone and everywhere. Expand your business reach and go global with the Seamless Merchant online payment solution.