Online Payment System: An Understanding

Saad Anwar

ContentsOnline Payment System...................................................................................................................3

Few Important Terminologies.........................................................................................................3

Top Online Payment Processors......................................................................................................4

E-Commerce Solution.....................................................................................................................5

Online Payment Process..............................................................................................................5

Data Flow Diagram (Source http://www.cybersource.com).......................................................5

Step by Step Guide to implement a payment option in to a website...............................................6

Online Payment System

Online payment system is an essential part of the modern ecommerce world. It is a way

to receive payments from customers all over the world for services and products.

In ecommerce world customer pays through different means most of these means are

ultimately connect to customer’s credit card and customer’s bank.

For e.g. if a customer pay to an online t-shirt store through PayPal (a famous online

payment system) then it means that customer has linked his credit card (acquired from his bank)

to the PayPal. PayPal is just a world renowned medium to connect customer’s monetary details

with the receiver’s bank or payment system.

Few Important Terminologies

Online Payment: A mode of electronic payment through which a customer pays for a

product or service.

Merchant Account: Merchant account is a type of bank account through which a

merchant accepts payment via credit and debit cards.

Merchant Account Provider: Merchant account provider are basically like banks

providing accounts for their customers. Online merchant account provider is vitally linked with

banks to carry on the transactions. Companies like PayPal, 2Co, SWREG, Authorize.net, Google

Checkout, and Braintree.

ACH Payments: These payments are electronically transfers from credit and debit cards.

This type of payments allows customers to make payment for their online purchases or bill

payments.

Payment Gateway: Payment gateway is an online service which authorizes payments for

online retailers. Payment gateway has two very vital functions:

1. Have an ecommerce solution for merchants to securely login and see details of the

transactions.

2. Connect website’s shopping cart to the gateway through a computer program

(a.k.a API) for the real time processing of the transactions for the website.

Payment Processors: This is an online service used by merchants to perform the online

transactions securely and safely. Anti fraud measures and data theft are the primary focus of

payment processors.

Most of the online payment processors are providing payment gateway services to their users.

Top Online Payment Processors

1. Authorize.net

2. PayPal

3. 2CO

4. Google Checkout

5. Braintree

6. Skrill

7. SWREG

8. Stripe

E-Commerce Solution

In this part we will overview the process of implementing payment solution to any business

model. Before starting with the implementation process let us see how an online payment system

works.

Online Payment Process

Data Flow Diagram

(Source http://www.cybersource.com)

Step 1: Customer comes to Merchant’s website and puts credit card information in to it.

Step 2: Merchant’s website securely transfer information to Cyber Source (it is a payment

processor merchant has chosen just like Authorize.net, 2CO, Google Checkout, PayPal etc).

Step 3: Merchant's chosen payment processor submit data to Credit Card Network (like VISA,

Mastercard). In the picture above it is shown as “3rd Party Processor”

Step 4: The credit card network routes the transaction to the bank that issued the credit card to

the customer

Step 5: The issuing bank (customer's bank) approves or decline the transaction based on

customer's available funds and sends back the result. Credit Card Network relays the transaction

result to Merchant's bank processor (CyberSource in the picture).

Step 6: Merchant's chosen payment gateway (CyberSource in the above picture and others can

be 2CO, Google Checkout, Authorize.net etc.) stores the transaction results and sends the results

to the website for the customer and merchant to view.

Step 7: Issuing bank sends the appropriate funds for the transaction to the credit card network

which further passes it on to the merchant's account.

Step 8: The bank then deposits the funds into Merchant's bank account which by then is ready

for any type of withdrawal (Online transfer, checks, wire transfer and collecting cash from

branch etc.)

Step by Step Guide to implement a payment option in to a website

Step 1: Build a website through which you can showcase your products/services.

Step 2: Select a payment processor provider from any of the following companies as per your

requirement. The selection process for payment processor can be bit tricky due to their term

and conditions. The best solution depends upon merchant’s product and pricing and remitting

limitations. Normally 2CO charges 5.5% (of the amount of transaction) + 45 cents per

transaction. Others payment processors charge pretty much the same.

Step 3: After selecting the payment processor apply for a merchant account on its website.

Step 4: Payment processor will evaluate the application and your website and approve the

application.

Step 5: After approval the payment processor (2CO for example) will provide a code to add in to

your website. Your web developer (or a php developer) can easily add that code in to the

payment page of your website.

Step 6: After implementing the code it is better to run a test and pass through a small payment.

Step 7: Once the payment processor is implemented in to your website it can now easily used by

the customers to make payments through the simple payment form on your website. The

payment will be processed as explained in the previous section (for details see Online Payment

Process).

Step 8: It is now time to get the payments from your payment processor in to your bank account.

This is the most important part and for this part we have asked in Step 2 to select payment

processor very carefully as per your requirements. Many payment processors ask to link a

bank account (mostly US bank accounts) so that amount in your merchant account can either be

directly deposited in to it and can be used as per your requirements. Another option is to make

wire transfer to your selected bank account all across the world (few countries are banned like

Iran, North Korea etc.). 2CO offer weekly wire transfer to your selected bank account in most

parts of the world (including Pakistan).

Step 9: Once the payment is received in your bank account via wire transfer or by any other

means you can easily withdraw it through checks and debit or visa cards.