Understanding The Basic Architecture Of Online Payment Processing

It is not surprising to discover that stay-at-home orders and social distancing have had a major impact on the reliance of consumers on eCommerce. There has been a surge of digital everything, including digital payments. Cash is fast moving to the margin, whereas mobile payment systems, digital wallets, and online money transfers are gaining traction.

According to current projections, global e-retail sales are expected to grow to up to $5.4 trillion by 2022, and in order to thrive as a merchant operating during these unpredictable times, you need to imply online payment processing. Getting a basic understanding of online payment processing will help you adapt to this increased use of digital payments.

What Is Online Payment Processing?

Online payment processing refers to the transfer of funds via the internet as payment for goods or services ordered online. In order to authenticate the buyer and authorize the transaction, personal and financial information must be exchanged. In order to accept payments online, a merchant must work with one or more middle partners, who handle the technology side and connect the merchant with the shopper’s financial institution.

The card payment process might appear to be simple, but it is quite complex. There is more to it than just a direct relationship between a customer and a merchant. 

The Four Stages Of Payment Processing


This is the initial phase of a transaction. When a cardholder initiates a sale, the merchant requests authorization from the issuing bank. In order for the issuing bank to approve an authorization, the cardholder’s account must be in good standing, funds must be available to cover the sale, and the card not reported lost or stolen. A bank that does not grant authorization indicates an issue with the account and the transaction should be terminated.

While the entire authorization process completes in seconds, it doesn’t finalize the sale. Several stages are still left to be completed.


This is the second step in the process. Rather than transmitting real-time data for each transaction to be paid one by one, it is generally deemed more efficient for merchants to store transaction data and submit it in batches. It also provides time to manually review each order and ensure no fraud has taken place. 


The acquirer accepts batched transactions from the processor and transfers them to the card networks who then distribute the payments to the corresponding issuer. The cost of the transaction is debited by the issuer from the cardholder’s account, then those funds are routed back to the acquirer via the card network.


This is the last step in the process, when the acquirer deposits the money from the transaction into the merchant’s account. Typically, it takes a few days for the settlement process to be completed. However, it’s not uncommon for banks to let you access your money before they receive it.

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