Home Editorials What is Online Payment, and How Does It Work?

What is Online Payment, and How Does It Work?

Most of us use online payments on a daily basis and they will likely become even more widespread over the next five years. But do you have a clear idea of what they are and how they work? In this article, we’ll cover everything you need to know about online payments, including the crucial elements that make online payment possible and the steps service providers must take with every single online payment. 

What Are Online Payments?

While you can probably guess that online payments have something to do with making payments online, this would be an overly simplified understanding of what they actually are. While online payments make up to 50% ofFor starters, there are multiple parties involved in online payments, not just the merchant and the payer, even though these are integral for any online transaction.

Online payments also involve a payment gateway, software that accepts payments for your online shop. Then you have your payment processing company, which connects the merchant’s payment gateway and its account to ensure that the merchant receives the payment for that purchase. Usually, these payment processors are partnered up with payment gateways to provide frictionless service.

Another aspect of online payment is your customer’s payment system – a payment network used by your customer to make the payment, for example, Visa, MasterCard, or PayPal, and lastly, your customer’s bank, which issues the card used for the payment. So there’s much more to paying online than just putting a price on a product and getting a customer’s financial information.

Moreover, at every step of the way, each service provider has to ensure that the payment isn’t fraudulent and that no security risk is being overlooked. While online payments are a lot more convenient than other types of payments, if you are using the wrong service or a platform, or if there’s a mistake on your part, the consequences could be pretty damaging.

Clearly, online payments have a lot of moving parts that are working overtime to ensure secure and fast transactions. An excellent example of a complete payment platform is the Ecommpay payment provider, which lets you accept payment through their service.

Now that we’ve covered the essential elements of online payment, let’s look at the steps each transaction has to go through to complete the payment.

Online Payment Steps

With the main moving pieces and definitions out of the way, let’s dive a little deeper into the online payment procedure and break it down into simple steps that are taken every single time someone makes an online payment.


The first step in every online payment is authorization. Authorization is also the only step in the online payment process where your customer is involved. Once the customer puts down their payment information in the payment form or at the checkout, usually a debit card or PayPal details, the payment gateway we mentioned earlier will send that data to the payment processing company.

Then the payment processing company will send that data to the payment network, where the system checks whether the customer has sufficient funds on the relevant account to pay for whatever they have tried to purchase. This is also when the payment processor will ensure that the card is not blocked.

Making the Purchase

After the payment network confirms sufficient funds, the necessary amount is sent to the merchant’s payment processing company. At this point, the purchase is confirmed to the buyer and the merchant.

On the other hand, the purchase can fall through if your customer puts down the wrong information, if they don’t have sufficient funds on their card or if their card has expired. In that case, the purchase falls through.

Finalizing the Payment

After both parties receive payment confirmation, the merchant’s payment processing company sends the money to the merchant’s bank account. The money for the purchase usually arrives in the merchant’s bank account in a matter of 2-3 business days, and then the payment process is complete. Of course, supporting this process comes with additional fees, which the merchant usually pays on a monthly basis. 

What are the fees for online payments?

Of course, all these complicated actions require some fees for the service. While there is no one industry standard for online payment fees, a couple of factors influence the amount merchants to have to take online payments.

The most crucial factor affecting the monthly fees for online payments is the volume of transactions. If you are a huge e-commerce platform and have to take thousands of payments daily, the service provider will likely cut you a decent deal, and you will pay a lower percentage for individual transactions. On the other hand, it is difficult to get deals like that when you are processing smaller amounts of payments on a daily basis, and in that case you may just want to look for cheaper alternatives.

Additionally, your processing fees will also depend on the kinds of transactions you will need from your online payment providers. If you want to have additional services in place or have enhanced security, your monthly payments will also increase respectively.

Moreover, the service providers might also charge additional installation fees, so make sure to read their offer well before committing to it.

While it may sound overwhelming to offer online payments, with so many outstanding service providers, you won’t have to do much work to set the online payment process in motion. Plus, customers always appreciate it when there is an easy, safe and convenient way for them to pay, instead of having to jump through hops just to get access to a product or a service.