Payment Processing in Pictures

It can be hard to understand how online payment processing works. Many different steps and a lot of jargon make it seem more complicated than it is. To help you see the big picture, we’ve laid out a typical payment process in diagrams.

Here’s the whole diagram – but don’t worry, we’ll break it down.


 

The Visitor Front End

Let’s start by considering the pages that your visitors see. These pages allow your visitor to define what they are paying for, instigate the payment process, and then enter their credit card and other information.



First, your visitor needs to choose what they are paying for – for instance, a donation, product, or an event registration. For a donation, this might be as straightforward as a “Donate” button, but selling products or events often involve complex functionality to show visitors what is available and to let them select what they want (for instance, via a “shopping cart”). If you’re selling products, you’ll also need to be concerned about calculating shipping and taxes. The mechanics of products, events, and shopping carts could each fill up an article of their own - for now, let’s assume that your visitor has selected what they want, and they have a fixed price that they’d like to charge to their credit card.

With a price defined, they then fill in a payment form with their information – at a minimum their name, credit card information, and address.

When your visitor enters their information and clicks “Submit”, a number of backend processes are kicked off.

 

The Payment Gateway and Fraud Prevention

The first backend process is a check of the credit card to try to verify that the card and the charge are valid.

When your visitor clicks “Submit”, a processor called the Payment Gateway takes over. The Payment Gateway – the little man in red in our diagram – handles the actual backend communications and transactions, contacting the bank, reporting back on the results, and moving the money.

The Payment Gateway starts by checking to make sure that the credit card number is valid. To decrease the possibility of fraud, it may also check to make sure that the address, name, or credit card CSV code (the three digit code on the back of the card) match. Fraud is unfortunately common even if you’re just processing donations, so these checks are an important step in the process.

If the card is rejected, the Payment Gateway sends back word to your website so that you can notify the visitor. Otherwise, the process continues.

 

Merchant Account

The money is routed by the Payment Gateway into a bank account called a Merchant Account.

When the charge is accepted as valid, the Payment Gateway initiates a process by which money is transferred from the credit card company to a type of specialized bank account called a Merchant Account. A Merchant Account does nothing but hold credit card payments, but you can’t accept credit cards without one. Even if you have one for accepting credit card payments by phone, you may need a different one for online payments.

You can open your own Merchant Account, or use a vendor’s. For instance, if you accept payments via PayPal, you are relying on PayPal’s Merchant Account.

 

Thanks, Receipt, and Reports

With the payment successful processed, the visitor is notified that their payment went through, and the transaction is viewable in reporting tools.

When the payment gateway reports back that the card has been charged, the visitor is shown a confirmation screen confirming that everything went through successfully. They are also typically emailed a receipt at this point. Usually, any reports are updated in real time, so that you’ll be able to see within seconds that a payment was made.

 

Synching Data

You’ll need to determine how to get the payment data from the payment processor into your own database.

The reporting tools that automatically show the payment information are likely to be different from the application you typically use to track constituent information. In order to synch the two sources, you should be able to at least manually export a text file from the payment processing application and load that into your database. If you have many transactions, it’s also worth looking into ways that you can automatically synch the two data sources with the help of a programmer.

 

Receiving the Money

Last but certainly not least, the money needs to be moved from the Merchant Account to your bank account.

The money in the Merchant Account isn’t accessible to you. If the Merchant Account is in your name, however, the money will automatically be deposited into your more traditional bank account within a couple of days. If the Merchant Account is in a vendor’s name, that vendor will need to pay you. Vendors typically pay once or twice monthly, either via check or by wire transfer.

 

Putting it All Together

So here it is all back together again.

Whew! Payment processing isn’t straightforward, but it doesn’t have to be baffling. None of the steps are particularly technical or complicated - you just need a sense of the big picture.

 Thanks to TechSoup for the financial support of this article.

License: 
Copyright Idealware. Licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 2.5 License

Comments

Profit

 My question is how do the Payment Processors make profit? 

Healthcare Facilities

 While I believe your diagram to be very informational and highly accurate, I'd like to also add that online payment portals can sometimes differ in the healthcare industry due to extra layers of security needed. If you'd like to learn more, please visit http://www.ipayx.com/?q=healthcare%20scenarios to learn how online payment portals work in hospitals and doctor offices. 

Great Article

Great useful article. Thank you

not using any third party payment gateway like PayPal

Hi there,

We are desiging a website for a NGO which basically needs a page to get users ability to donate. Now the problem is that they don't want to give a 3% of that donates to paypal or any other third party payment gateway. I have been looking for information on how to implement the payment process without using third parties for weeks; So thanks very much for great information with photos. So now my question is about the merchant account. Is this a type of account that anybody can open in a bank? Also I don't know what to do with the information gathered from customers; I mean when you got the name, address, csv, card number and expiration date, what do you do with them; do you send them to the bank via email, or any other way?

Please excuse me if none of the ways i mentioned makes sense. I don't have a clue on how things work after you have got the card information.

Any help would be much appreciated.

 

Thanks

Abdul Waheed

gateway

Good Day

Not sure if you are still requiring a gateway we do have one that you can either license or have a subscription agreement with

Please feel free to e-mal us to set up a time to discuss

Regards

Cascadaia

payment gateway

Hello i would be interested in more information  concerning your gateway product (we do have one that you can either license or have a subscription agreement with) this may suit our current venture look forward to a reply Mark

Creating our own gateway for fundraising

 Hello Cascadaia, 

Our small nonprofit is setting up a fundraising platform for our community solar program. I'd love to learn about your gateway license/subscription agreement. 

Thank you so much, 

Twink

Thanks

Hello,

Thanks for the useful article, it helps a lot.

Regards,
AHMED

Online Payment Process

 Wow, this was AWESOME!

I searched everywhere for a similar article but was unable to find one. This explained everything I needed to know, and the images helped a lot too. I think I'll be able ace my exam tomorrow, I owe you guys one!

 

Images missing

Great article, thanks!  Having it in pictures really helps

One problem - the click to enlarge links and images don't work - the images are missing and get a file not found response or similar.

 

 

I second that emotion...

 I loves me some Idealware diagrams and charts.  I can't enlarge these images -- I am directed  to a drupal site instead. Thanks.