How Does Online Credit Card Processing Work?

If you have an online store, you’ve probably been accepting online payments for some time. But have you wondered if you’re offering the payment methods your customers want to use? Are you offering the best payment methods possible?

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Many online merchants have lots of questions about online credit card processing. They know their customers want to pay by credit card. In many cases, they’re just not sure how processing works or how they can accept these payments.

Setting up Processing

The first step in online credit card processing is actually setting up the system. Most merchants will partner with a provider. If you have a brick-and-mortar store, you may already work with a payment processing provider, so you might consider working with them for your online store too.

If you’re not already working with a payment processing provider, however, you’ll want to do some research and find the right fit for your business. There are many options, but choose wisely: The right partner will help your business, but a bad partner could create problems!

Gateway Providers

One of the most confusing things about online credit card processing is the existence of gateway providers. Merchants sometimes stumble on this point: They’re not sure if they already have a gateway, if their payment provider has given them one, or if they need to purchase one from someone else. Some people even think the gateway’s all they need.

If you’re working with a payment processing provider, chances are you’ll purchase both the gateway and the payment processing service from them. In some cases, you might opt to purchase the gateway from another service provider. You do need both, however.

The Finer Details

Now you’ve set up your payment processing and your gateway. What happens when a customer makes a purchase?

Much like when someone makes a credit card purchase in a physical store, the card information is processed once it’s entered in your online store. The information is routed through the gateway, and a request is made to the card issuer. This electronic request for funds triggers the card company to review the customer’s account and the details of the transaction. If the customer has enough credit, and the transaction doesn’t look suspicious, it will be cleared.

Once the request is cleared, the funds are transferred. They’ll be sent first to your payment processing provider, who then routes the money into your merchant account.

What about Security?

Most people, including consumers and merchants, have some concerns about online credit card fraud and rightfully so. IBM reports consumers lost $16 billion to fraud in 2016 alone, and the losses have been climbing for years now.

In light of those facts, security is a major concern for consumers, merchants, payment processing providers, and credit card companies alike. You should always review the security measures your payment processing provider offers. When it comes to online credit card processing, there’s no such thing as too much security.

You should also inquire about the protections your provider offers in the event your store is targeted by fraud. Chargebacks are an online merchant’s worst nightmare, as the credit card company withdraws previously transferred funds from your account. If you’re hit with a rash of false transactions, your account could default. A good provider will take steps to keep your account from defaulting.

Isn’t It More Complicated?

A lot of people think online credit card processing must be incredibly complex! In fact, it’s relatively simple, and it’s actually a lot like what goes on in a physical store. Simply make sure you’ve teamed up with the right payment processing provider, and you’ll be accepting and processing online credit card payments in no time.


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Lisa Gibson

Lisa is the Credit Manager of BNA Smart Payment Systems and has over 18 years of experience in diverse roles of credit and credit risk management. She graduated from the financial program at Boreal College and is an expert in personal loans and line of credit, mortgage underwriting, private label commercial credit cards, small business loans, and merchant account underwriting. Lisa is also an avid railfan and HO scale train modeler, and enjoys curling.

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