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How does online credit card processing work
Credit card payment is the most common way of online transaction, yet when it comes to understanding how credit card processing works most of us are quite confused. We have already published a post that describes how to set up payment processing in an online store. The current post is an attempt to give a general overview of the credit card processing thru Internet in simple terms.
When a retail store cashier swipes your credit card thru credit card terminal, the following process takes place: credit card and payment details are sent electronically to merchant’s acquiring bank, which contacts credit card issuing bank; in case transaction is approved, funds are deposited on the merchant’s account. Online credit card processing in ecommerce adheres to the same processing steps, except the physical credit card terminal that swipes your card in a retail store is substituted by payment gateway (Authorize.Net, 2checkout, CHASE Paymentech, etc.) – a service that processes online payments in a secure way.
A merchant needs to have a merchant account and a payment gateway account in order to set up credit cad processing in his store.
Let’s follow the steps from the time a customer types his credit card number in an online store to pay for his order till he receives a response whether the payment went thru:
- A customer places an order and types his credit card number on a secure site of an online store. Store administrator sees the shopping cart details, which include order and billing information.
- Shopping cart details along with merchant account are sent to payment gateway secure server for processing.
- Payment gateway forwards transaction information to merchant’s acquiring bank.
- Merchant’s acquiring bank forwards transaction information to the credit card issuing bank for transaction verification.
- Credit card issuing bank verifies transaction and sends response code (Approve, Deny, and reason for denial if applicable) back to merchant’s acquiring bank.
- Merchant’s bank sends credit card transaction details and response back to payment gateway. If payment is approved, the bank will deposit funds on a merchant’s account at the scheduled time.
- Payment gateway sends transaction details and response back to merchant’s online store.
- Payment information is displayed to the customer; i.e. “credit card was charged”, “credit card was denied”, etc.
At certain processing stages fees will be charged from the transaction total. The amount of fees depends on a payment gateway used, merchant account, credit card type, and other factors; it usually adds up to be two to three percent of total charges.
In a future post we will tell more about a merchant account: why is it needed, what account types are there, and what do you need to do to get an account. Stay tuned!
Excellent information. Keep it up.
Comment by Alvin Kasey — April 25, 2007 @ 6:24 am
Excellent , please continue.i request you to immedietely address future post quiery:
In a future post we will tell more about a merchant account: why is it needed, what account types are there, and what do you need to do to get an account. Stay tuned!
Waiting eagerly.regards.
Comment by Rajesh kumar — May 25, 2007 @ 7:21 am
The post about a merchant account is now published. Please visit: http://blog.shop-script.com/things-good-to-know-when-setting-up-a-merchant-account/
Comment by Olga Karpman — May 25, 2007 @ 7:43 am
we set up with authoriz.net through http://www.capital-bankcard.com it has worked great so far!
Comment by robert Houser — June 26, 2007 @ 8:11 am
hi! thank’s for giving transparent knowledge that how online payment work’s
regard’s Alok
Comment by Alok Sah — June 27, 2007 @ 8:33 am
I couldn’t have said it better myself!
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Card Service Sales
Comment by Ken — June 27, 2007 @ 12:30 pm
Very good!!
I have a question: is it possible to connect a swipe terminal to an online store? I mean, if an e-store also has a business office and you go and buy with your Credit Card thru a swipe terminal, do you need a gateway then? How would that business connect that swipe terminal to their online store?
Thanks!
Comment by Laura — August 27, 2007 @ 2:27 pm
Laura,
I believe you need to register with payment gateway to make online transactions possible. A swipe terminal in your office will require you to swipe a card or punch the numbers, etc. With payment gateway customers can pay for purchases online, without any other physical device. I hope that answers you questions. There’s also a lot of information about credit card processing and merchant account on wikipedia.org. Check this out: http://en.wikipedia.org/wiki/Merchant_account
Comment by Olga Karpman — August 27, 2007 @ 11:52 pm
Exellent information given.
Thanks!
Comment by Samuel kamochu — September 10, 2007 @ 7:50 am
As you can see by these comments, the popularity of credit cards, is expanding even into offices now. What next?
Len
Comment by Len Cheap Credit Cards — December 1, 2007 @ 7:51 pm
I have a similar question to Laura’s above. I want the customer to enter their CC details through the checkout process.
The checkout would produce an e-mail to me with those details and I’d merchant the transaction through my CC swipe device (keying in the details). It’s the way our business office is set up.
Is it possible to capture the CC details in the Premium version?
ALSO…is it possible to assign random order confirmation numbers? In the thank you e-mail…thank you for your order, your order confirmation number is…
Thanks!
Comment by Paul Grazide — December 10, 2007 @ 11:24 am
Yes, this is possible with Shop-Script.
Please use “Manual credit card processing” module in Modules-Payment screen of backend to collect card information from customers and process it manually.
Order confirmation numbers feature is not available. However, Shop-Script PREMIUM supports customer confirmation numbers (customer needs to enter activation code which is emailed to him after he creates an account in your store). Probably you will find this feature useful.
Comment by Vladimir V. Tuporshin — December 11, 2007 @ 2:51 am
Vladimir,
Thanks for making is really easy for people to understand how the money flows - I am involved in the payment processing industry in Canada and I going to link to this post from my blog. Thanks again for doing great work!
Comment by Matthew Hunt — March 15, 2008 @ 7:08 pm
Thanks Vladimir
This blog is been very helpful.
i’m a designer and i recently used a credit card processing service called http://www.cardstream.com.
Cardstream’s Global Payment Gateway enables Merchants to process, authorise, settle and manage card transactions 24/7. Card transactions can be processed online, by telephone or via laptop, PDA and mobile devices.
I found them very efficient and i highly recommend them.
i’ll help spread the word!
Comment by Chris Ames — April 7, 2008 @ 7:39 am
I am writing a document on payment processing in commercial banking and planning to post it on our Knowledge Management intranet, so that other employees in my company can also benefit from reading it.I would like to use the data in this page for credit card processing.Can some one let me know how to get the permission to use this.
Comment by Ajesh Yarlagadda — May 2, 2008 @ 2:44 am
Is shop-script compatible with ANZ egate?
Comment by Karl — June 12, 2008 @ 3:59 am
I have found this post very useful to understand e-payments. Thank you! I’ve been looking for explanations like this for months.
I also liked this:
http://blog.shop-script.com/processing-payment-in-an-online-store-part-i
Comment by Gomer — August 7, 2008 @ 10:28 am
If I would like to use the diagram in a research paper, may I do so with full reference back and a link to this website as source? I very much respect intellectual property, especially on the Internet, so I would like to ask permission to do so.
Ex:
{Diagram}
Figure 1. Online Credit Card Processing
Source: http://blog.webasyst.net/how-does-online-credit-card-processing-works/
Thanks.
Comment by Errin — November 8, 2008 @ 5:00 pm
Sure, you may use this diagram.
Thanks.
Comment by Vladimir V. Tuporshin — November 8, 2008 @ 6:00 pm