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To understand the basics of an online payment system, the first thing
to understand is how a credit card transaction works. Only once a
person has comprehended the basics of how an online transaction works,
can a person truly appreciate the workings of an online payment system.
An online payments system is linked to a merchant account that is
provided to each vendor. For simplicity the term merchant will be used
in the article; it refers to businesses and online sites



A merchant account is an account where all the credit card payments a
merchant receives are stored. Once the merchant wants to receive funds
he can then request the company providing the merchant account to send
across the payment by cheque or directly transfer the payment into a
bank account of choice. In essence, an online payment is similar to
making a credit card payment in any store, instead of a POS (point of
sale terminal) the user manually enters his or her credit card details
on the website, the details are then sent to a server called the
payment gateway (the payment gateway is a dedicated server that is
linked to all major credit card companies).



Once the details are sent to the payment gateway, the payment gateway
checks to see if the details provided are valid, and the payment
gateway also checks to see if a customer has suitable credit. The
online payment process is similar to ‘swiping’ a card at any POS
terminal, only difference is that the medium is the internet. Once a
transaction is authorized, the payment gateway returns a code to the
website that requested the transaction. The website then displays the
result of the transaction on screen (in the case of a POS terminal the
transaction prints out a receipt). However if the transaction is not
authorized then an error or failure code is displayed on screen.



Where internet transactions differ from regular transactions is that
there is no way to physically verify that the credit card is being used
by its owner; so the chances of fraudulent use are higher, as the
person making the transaction online does not even have to have the
card in his hand to use the credit card. This is where payment
processing steps in, payment processing is far more specialised then
regular credit card transactions, since online transactions have a
higher risk attached to them, payment processing not only checks to see
the details via the payment gateway, online payment processing carries
out additional fraud detection algorithms on the transaction.



In essence a payment processing system actually uses various parameters
like the country of issue of the card, the previous payment history of
the card holder, and other similar parameters to gauge the probability
of the transaction being approved and thus ensure that there are no
additional problems like charge backs in the future.



Today with online transactions increasing at a rapid pace, payment
processing systems that specialize in online payments are a necessity
and it is essential for any online business to use a specialized online
payment processing system, and not just a payment gateway; In fact this
is why an increasingly large number of webmasters have started using
sites like fastcharge.com to carry out their online payment processing.


Article Source :Business Education Site

About the Author

Jim Duncan is the author of this article on payment system. Find more information about recurring billing here.

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