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How Does the Online Payments Process Work?

The online payment process involves a broad mix of vendors and technology solutions that work together to review the transaction and settle the payment.

The initial transaction review process involves several steps:

  • First, a business captures credit card information by terminal, phone, or payment gateway. 
  • Next, the information is sent to the merchant processor.
  • The processor sends this information to the card brand (e.g. Visa or MasterCard).
  • The card brand contacts the issuing bank to verify if funds are available to make the purchase.
  • From there, the issuing bank sends an approval or decline back to the card brand.
  • And lastly, the card brand sends the approval or decline back to the business. 

This process used to take several days and manual steps, with merchants having no way to know if the funds were available until long after the customer had left the store. Now, the entire process takes mere seconds! 

Once a transaction has been approved, the merchant goes through the clearing and settlement process: 

  • At the close of business, the merchant sends the daily batch of transactions to the acquiring bank.
  • The acquiring bank batch sends this information on to the card network.
  • The card network determines the issuing bank for each transaction and forwards the purchase data to each relevant bank.
  • The issuing banks debits the purchase amounts from the specific cardholder accounts.
  • The issuing banks send the payments to the merchant back through the card network.
  • The merchant’s acquiring bank receives the payments via the card network.
  • The acquiring bank credits the merchant’s account for that batch of transactions, minus any fees they might charge.

To learn about the payment process in full detail, don’t miss our helpful online guide, How Does the Online Payment Process Work?