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​​How Online Payment work?

Online payments work through a series of steps that involve various parties. Here are the steps of how online payments work:
  • Integration 
  • Initiation of Payment 
  • Encryption
  • Authorization
  • Response
  • Confirmation
  • Settlement of Funds

1) Integration

To begin receiving payments online, a merchant first creates a website or an e-commerce platform and then integrates it with a payment gateway.

2) Initiation of Payment

Customers visit the merchant's website, select products or services, and proceed to the checkout page. During the checkout process, customers enter their payment details, which typically include credit/debit card information or other payment methods like FPX or digital wallets.

3) Encryption

Once the customer enters their payment details, the payment gateway captures this information. It then encrypts the data to ensure its security during transmission. Encryption safeguards sensitive data from unauthorized access.

4) Authorization

The payment gateway sends the encrypted payment data to the payment processor. The payment processor is responsible for forwarding the transaction information to the acquirer. The acquirer sends the transaction details to the relevant card network and then routes the transaction to the customer's issuing bank. The issuing bank checks the transaction for validity, ensuring that the customer has sufficient funds or credit available for the purchase.

5) Response

The issuing bank responds to the authorization request with either an approval or a decline of the transaction. This response is sent back through the card network, the acquirer, and the payment processor, which then forwards it to the payment gateway.

6) Confirmation

The payment gateway relays the authorization response to the merchant's website. This informs both the customer and the merchant about the transaction's status. If the payment is approved, the order is typically confirmed, and the merchant can proceed with order fulfillment.

7) Settlement of Funds

If the payment is authorized, the issuing bank transfers the funds to the acquirer. The acquirer, in turn, deposits these funds into the merchant's account. The actual settlement process may take a few business days, depending on the merchant agreement. Once settled, the merchant can access the funds in their bank account.

Although online payments involve a complex process, the actual payment usually happens within a few seconds.

05 Oct 2023