Thursday, 21 March 2013

Part 3 – So how does an e-commerce payment work?

In the third installment of our new to e-commerce series of blogs, we thought the natural next step for this week would be to explore exactly how an e-commerce payment works.

We know it is important for a business to understand and be able to manage every process it goes through, and the journey of a payment is no different. By understanding the route a payment takes from your customer to your bank account it enables you to highlight any potential hold ups in this process, which ultimately means a better buying experience for your customers and faster cash flow for your business.

So in order to dispel the mystery surrounding the path of a payment, we have outlined this process below so you can start to cut through some of the jargon that you may hear.

Accepting credit or debit cards from your website goes through a number of different stages that are described below. These steps debit your customer's account and pay the funds into your bank account.


  • Company website: the online shopper adds a product/service that they wish to purchase into the websites shopping basket. Once the customer is ready to a make a purchase they go to the website checkout. The purchase details are then sent to a Payment Gateway to process the payment.
  • Payment Gateway: the shopper is directed to the Payment Gateway where they choose a payment method and enter their payment details. The Payment Gateway sends the payment details to the business's Merchant Account provider, who sends them via the card schemes to the shoppers card issuing bank for authorisation.
  • Card Issuer: the card issuer will check if the card details are correct, the cardholder's account has sufficient funds and that the card hasn't been reported lost or stolen. If everything is OK, the card issuing bank authorises the payment requested, and debits those funds from the shopper's bank account.
  • Payment confirmation: the confirmation of the payment is sent to the Payment Gateway, which notifies the shopper and the business that the payment has been authorised - normally via a confirmation screen and an email. Businesses should only dispatch goods to the shopper once they have received notification of the payment's authorisation.
  • Merchant Account: the funds for the purchase are then sent from the shopper's card issuer, to the business's Merchant Account. This can take 1-2 days to show in the Merchant Account.
  • Business Bank account: from the Merchant Account, the funds are paid into the business's bank account, normally with a short delay that's specified by the Merchant Account provider. The Merchant Account provider will deduct the cost associated with processing the payment with the card schemes - normally a small percentage of the value of a credit card transaction or a flat fee for a debit card.
The journey of a payment is just one small element in the financial set up and running of a business, however if it is understood and streamlined then it can make a significant positive impact to a businesses cash flow.

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