Accepting credit card payments

More and more online shoppers use their credit cards when paying for their purchases. This method of payment has proven to be fast, easy and secure. All you need to do is just to enter your card details, and the total order amount is automatically charged to your bank account. Yet, the entire mechanism may appear unclear to a beginner who never managed his own online store. That mechanism is explained in detail further in this article.

When you hand over your credit card to a cashier in a supermarket, its details and the order related information are read by a special card reader and are sent over to the bank where the merchant has an account. The merchant's bank contacts the bank that has issued the customer's credit card. If it accepts the transaction, the corresponding amount is transferred from the customer's account to the merchant's bank account.

In e-commerce the payments made with credit cards are processed in a similar manner with the only exception that the card reader and the supermarket cashier are replaced with a special company called a payment system provider. Such companies offer services on secure processing of credit card payments, charging their corresponding bank accounts and transferring the charged amounts to the merchant's bank account.

There are numerous payment systems all over the world, for instance Authorize.Net, 2checkout, Chase Paymentech and so on. In order to start using a payment system, you need to become a registered user and then obtain a so-called merchant account which will allow you to accept online payments made with bank cards.

In spite of several insignificant differences in the range of services offered by payment system providers, the credit card processing routine performed by an online store is always the same. Between the moment when a customer enters his or her card details in the storefront and the receipt of a report about the transaction results the following actions are automatically carried by the online store and the payment system:

1. A customer places an order and enters his or her credit card details in the online storefront.
2. Order details and the number of the merchant account are sent over to the payment system server through a secure channel (SSL).
3. The payment system sends the payment details to the bank where the merchant has an account.
4. The merchant's bank in its turn forwards the payment information to the credit card issuer (i.e. the customer's bank).
5. The bank that had issued the credit card checks whether the customer has enough money in his account and whether the provided information is valid. The corresponding report is sent back to the merchant's bank.
6. The merchant's bank redirects the response of the credit issuer and the order details to the payment system. If the transaction was accepted, the customer's bank account is charged for the order total amount which is then transferred to the merchant's bank account.
7. The payment system sends the transaction results to the online store.
8. The report about the processed payment (or a refusal to accept it) is provided to the customer.

Depending on the conditions of the merchant's bank, the type of the bank card used by the customer and the payment system involved in the processing, the merchant may be charged a commission which is usually 2—3% of the total order amount.