How do online payments work

18 Nov, 2021 . 4 minutes

Online payment systems

An online payment system facilitates electronic payment for online transactions. It has become increasingly popular due to the widespread use of online shopping and e-banking.

An online transaction usually involves the transfer of funds from a customer's account to a merchant's bank account. The online payment can be done with a credit card, chequing account, or other service providers, such as PayPal or Klarna.

1. What is online payment?

Online payment refers to a payment that is exchanged electronically involving the use of computer networks, the internet, and digitally stored value systems. It is usually initiated in online purchases of goods or services, but there are times when it is done in-store – such as in the case of debit card transactions.

2. When was online payment introduced?

After the Diners Club card was introduced in 1950, the credit card industry started shaping into the system we are familiar with today. In 1958, the first credit card issued by a third-party bank was launched. Originally called BankAmericard, it became known as Visa in 1977. Online banking and bill payments followed in 1994 while mobile web payments started to emerge in 1997.

How do online payments work?

1. How does payment processing work?

A typical online payment transaction follows these steps:

2. Do online payments go through immediately?

Yes, but some services might be slower or unavailable outside business hours or on weekends and public holidays, depending on the providers.

3. How can I pay safely online?

Make sure you only buy from a secure and legitimate website. When you create shopping and payment accounts, use strong passwords. Keep software and virus protection up to date to prevent fraudulent access to your data. Notify your provider immediately if you think your card has been misused.

While credit cards offer more protection, you can use online services. It is good to ensure that your online payment service provider establishes extra security measures, such as two-factor authorisation. This means customers have to pass an extra level of security, usually through a one-off code, sent by text message to the phone number registered to the account, to verify their credentials.

4. What are the options for paying online?

There are several ways to make online payments. These include credit and debit cards, prepaid cards, bank transfers, e-wallets, mobile payments, cryptocurrencies, e-commerce payment gateways, and other fintech services, such as buy now pay later.

a. How to pay online with a debit card

The principle is the same as paying online with a credit card. After selecting the "pay with credit card" option, you must indicate the type of card, such as Visa or MasterCard, and the issuing bank. The form will then ask you to type in the 16-digit number of your card, its expiry date, and its CCD, CVV, or similar security code.

b. How can I pay online by mobile?

You can start by choosing a mobile payment application, such as an e-wallet or other type of fintech service, like PayPal or Klarna. Ensure that your payment service provider is legitimate before signing up. The signup process might vary, but it mainly obliges you to fill in a form, upload an image of your identification document, and set up basic credentials for your mobile app payment account.

5. How to pay online on an e-commerce website

Depending on the method you choose, the steps may vary. After you complete your transaction, you will be prompted to choose a payment method. If you choose to pay with a credit, debit or prepaid card, you will have to continue with the aforementioned method on the debit card.

If you choose bank transfers, continue by following the bank transfer method as recommended by your bank via ATM, the internet, or mobile banking.

If you choose to use one of the online payment applications such as e-wallets, mobile payments, cryptocurrencies, e-commerce payment gateways, or other fintech services, you must ensure that the e-commerce platform accepts such methods so you can opt for them after checkout. Depending on the application, the e-commerce platform will usually redirect you to the application or a web-based form you need to complete.

Online payment process

1. Online payment process steps

After you check out a purchase, you will be prompted to pick one or more payment methods. The merchant will then redirect you to your chosen payment service provider to complete the transaction. If the payment is approved, the merchant will process your transaction.

2. What is required for online payments?

First of all, you need an account with a bank or other service provider. You will also need a secure connection and an appropriate gadget in the case of mobile payment applications. Some applications are incompatible with several types of gadgets.

Online payment methods

1. Most popular online payment methods

·   PayPal

·   Amazon Pay

·   eBay Managed Payments

·   Google Pay

·   Apple Pay

·   Direct debit payments

·   Bank transfer

·  Prepaid cards.

Advantages and disadvantages of online payment:

1. Advantages of online payment

On top of increased speed and convenience for both parties, online payments have been proven to increase sales and reduce transaction costs for merchants.

2. Disadvantages of online payment

Customers usually have security concerns regarding the use of online payment methods. As for merchants, it might mean an increased responsibility to protect sensitive financial information stored in a business's computer systems from unauthorised access, resulting in higher business costs.

Sign up for the newsletter

By submitting this form, you acknowledge that you have reviewed the terms of our Privacy Statement and consent to the use of data in accordance therewith.

See how APEXX can help you grow your business

  • Single Integration
  • Acquirer Agnostic
  • Payment Methods