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To understand the basics of an online payment system, the first thing to understand is how a credit card transaction works. Only once a person has comprehended the basics of how an online transaction works, can a person truly appreciate the workings of an online payment system. An online payments system is linked to a merchant account that is provided to each vendor. For simplicity the term merchant will be used in the article; it refers to businesses and online sites A merchant account is an account where all the credit card payments a merchant receives are stored. Once the merchant wants to receive funds he can then request the company providing the merchant account to send across the payment by cheque or directly transfer the payment into a bank account of choice. In essence, an online payment is similar to making a credit card payment in any store, instead of a POS (point of sale terminal) the user manually enters his or her credit card details on the website, the details are then sent to a server called the payment gateway (the payment gateway is a dedicated server that is linked to all major credit card companies). Once the details are sent to the payment gateway, the payment gateway checks to see if the details provided are valid, and the payment gateway also checks to see if a customer has suitable credit. The online payment process is similar to ‘swiping’ a card at any POS terminal, only difference is that the medium is the internet. Once a transaction is authorized, the payment gateway returns a code to the website that requested the transaction. The website then displays the result of the transaction on screen (in the case of a POS terminal the transaction prints out a receipt). However if the transaction is not authorized then an error or failure code is displayed on screen. Where internet transactions differ from regular transactions is that there is no way to physically verify that the credit card is being used by its owner; so the chances of fraudulent use are higher, as the person making the transaction online does not even have to have the card in his hand to use the credit card. This is where payment processing steps in, payment processing is far more specialised then regular credit card transactions, since online transactions have a higher risk attached to them, payment processing not only checks to see the details via the payment gateway, online payment processing carries out additional fraud detection algorithms on the transaction. In essence a payment processing system actually uses various parameters like the country of issue of the card, the previous payment history of the card holder, and other similar parameters to gauge the probability of the transaction being approved and thus ensure that there are no additional problems like charge backs in the future. Today with online transactions increasing at a rapid pace, payment processing systems that specialize in online payments are a necessity and it is essential for any online business to use a specialized online payment processing system, and not just a payment gateway; In fact this is why an increasingly large number of webmasters have started using sites like fastcharge.com to carry out their online payment processing.
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Jim Duncan is the author of this article on ecommerce. Find more information about internet payment systems here.
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