How Do Online Payments Work?

June 15, 2022

How Do Online Payments Work?

The world of E-commerce is growing at an exponential rate, and we often take for granted how easy it is to click, buy, and receive virtually any product. Online payments are slick, hassle-free, and seem to work instantly, but what actually happens when you make an online payment?

How Do Online Payments Work?

Online payments are split into two basic steps:

  • Card authorisation
  • Transaction Settlement

Step 1 – Card Authorisation

The only step the consumer is directly involved in is card authorisation. The cardholder will fill out an online payment form, entering details such as their name and card information. This form is then sent to a payment gateway such as Cardstream, where the details are verified. This verification includes ensuring the consumer has sufficient funds to pay for their purchase.

Once these checks have occurred, a message is then returned to your payment gateway and displayed to the cardholder as either “approved” or “declined.”

If approved, the payment gateway will then send an email confirming the purchase details.

Why Would a Payment Get Declined?

A payment can be declined for several reasons:

  •  Insufficient funds
  • Incorrect cardholder details entered
  • Expired card

Step 2 – Transaction Settlement

To settle the transaction, your payment gateway will submit the details to the merchant’s bank. This can be done as either a single transaction, or as a batch at the end of the day.

The acquiring bank will receive a notification of the transaction, and then forward it to the relevant card company (VISA, Mastercard, AmEx, etc.) where they wait for a second confirmation from the cardholder’s bank.

Once approved, the card issuer will send the merchant’s bank a credit, which is used to deposit the payment into the merchant’s account. The cardholder will be charged, and this will appear on their bank statement.

What is a Payment Gateway?

Cardstream is a Level 1 PCI compliant payment gateway, which allows merchants to accept online sales via different integration types. It will manage the card transactions, transmitting information between the cardholder’s card and the merchant’s bank.

From a full end-to-end white-label payment gateway to modular solutions, Cardstream can cover all your payment requirements in the forever changing payment processing landscape.

To learn more about how a payment gateway can take your business to the next level, contact us.