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What you didn't know about online card payments

Whether booking your dream holiday or buying a last minute Easter present, online shopping has become the norm for many. In the UK alone, it’s estimated that a whopping 86% of people shopped online at least once in 2017. But have you ever wondered how online payments work?

In an ideal world, once you make a purchase, your money should be instantly transferred from your account over to the retailer, allowing them to ship you the goods or service once they have safely received your payment. However, in reality things are a bit more complicated.

To illustrate the process, we will use a real-world example - let’s assume John is ordering a book from Amazon. As soon as he pops his card details into the online form and clicks ‘Buy’, this is what goes on behind the scenes:

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The Gateway to the financial world 🏦

John’s order is initiated on the website and his transaction details are sent from his browser to Amazon’s web servers. This is usually done through a secure connection which protects your details as they travel via the internet.

From the server, John’s transaction details are sent through a secure connection over to the payment gateway.

A payment gateway is a type of virtual point of sales terminal that handles transaction data between the retailer’s online portal (Amazon) and the banks.

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The payment gateway captures the transaction details and repackages them in a special type of message before securely sending them over to Amazon’s payment processor.

Who actually processes my payment? 💳

The payment processor is the central hub that connects the payment gateway to all the other parties involved such as the card networks (VISA, MasterCard etc.), your bank and the retailer’s bank.

In simple terms, a payment processor is a company or service that handles transactions between a merchant and its customers.

Amazon’s payment processor needs to check if John’s card is valid and if there are enough funds to make the purchase. It does this by sending a request containing John’s transaction data onto the card network (VISA, MasterCard etc.) who then forwards it to John’s bank (also known as the issuing bank or issuer).

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Once John’s bank approves (or declines) his transaction, the bank reserves the purchase amount from his account and sends an authorization back through the card network to the payment processor who forwards it back to the payment gateway and finally to Amazon, allowing them to display the order confirmation on screen. The entire process up to this point usually takes less than 2 seconds to complete.

🤔 Did you know that Disposable Virtual Cards are processed in the same way as physical ones? 📖

Amazon will now ship John’s order, knowing that his payment has been approved. Note that John’s funds haven’t reached Amazon just yet; the money is still with his bank, ready to be sent out in the next step.

Ok, but how does the retailer receive my money? 💸

To receive the funds, Amazon (the merchant) will send all the approved authorizations from that day to their acquiring bank via the payment processor. This happens because it is much more efficient to send all the successful transactions bundled together in a ‘batch’, rather than sending them one by one.

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Amazon’s bank will then request the funds for every authorized transaction in that batch, from all the different card issuers, including John’s bank.

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These payments are made directly into Amazon’s merchant account, usually the next day, but the entire process from John’s online purchase to Amazon receiving the funds typically takes 3 days.

🤔 Ever wondered why some transactions don't show up on your account? Find out what is a Pending Transaction 📖


Now that we have a good understanding of how online payments actually work, we can see how worldwide e-commerce manages to generate revenues of over $750K every minute. 🤑

And with this much money running through the various payments systems and an increasing demand from consumers worldwide, we can only expect to see more innovation and disruption over the coming years. 🚀