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What is online payment processing?

Stephen Hart

Stephen Hart

Founder - Cardswitcher

Former - Chief Financial Officer @ Worldpay

When you first set up shop (online) and want to start taking payments, it can be pretty confusing working out how it all works and what accounts and software you need to set up.

At CardSwitcher, we want to make easy work of taking payments online. In this post, we’ll explain in plain English what online payment processing is, how it works, and what you need to do to set it up smoothly for your business.


What does online payment processing mean?

Online payment processing is the process of transferring money from a customer’s bank account to a business bank account when a customer makes a purchase online.

someone online shopping on laptop

Who is involved in online payment processing?

There are a few main players involved in online payment processing. They include:

  • The cardholder - this is the customer who owns the card or bank account being used in the transaction.
  • The merchant - this is the business who is selling the goods or service the customer is paying for.
  • Payment gateway - this is software that integrates with your ecommerce store. Customers enter their details into it, it is encrypted and sent to the acquirer.
  • Acquirer / payment processing company - this is the bank that makes requests from the issuing bank for money on behalf of the merchant.
  • Card scheme - this is the payment network which is linked to the customer’s card (e.g. Visa or Mastercard). They are the link between the acquiring and issuing bank.
  • Issuing bank - this is the bank that issues cards to customers on behalf of card schemes. They extend credit so approve or decline transactions.
  • Merchant account - this is a temporary holding bank account where funds are transferred before processing into the business bank account.

What steps are involved in online payment processing?

Here are the steps involved in processing payments online:

Customer attempts payment

  1. The customer enters their card details into the payment gateway of an ecommerce store.
  2. The payment gateway encrypts the card details and forwards them to the acquiring bank.

Funds are requested

  1. The acquiring bank sends a request to the card scheme to authorise the payment.
  2. The card scheme then asks the issuing bank if there is enough money.

Request approved

  1. The issuing bank confirms there is enough funds and approves the request.
  2. The card scheme lets the acquiring bank know the request has been approved.
  3. The acquiring bank lets the payment gateway know the request has been approved.
  4. The payment gateway lets the customer know the request has been approved.

Funds transferred

  1. The funds are transferred from the customer account to the merchant account.
  2. The funds are transferred from the merchant account to the business bank account.
couple shopping online

How long should an online payment take to process?

The amount of time online payment processing takes varies depending on your provider. It usually takes 1-3 working days for the money to complete “settle” (transfer) from the customer bank account to the merchant’s business bank account.


Is online payment processing different for different payment types?

For most payment methods, the online payment processing process is roughly the same. Whether a customer makes a payment with a digital wallet or their credit card, the process after they’ve attempted to make the payment is largely the same.

It is different if you are doing a bank account to bank account payment, like a direct debit.

Here are the steps when doing bank to bank payments:

  • The customer uses an online form to authorise automatic payments to be taken, or they authorise a one-off payment to be taken using their online/mobile banking.
  •  The business bank account makes a payment request from the customer bank.
  • The customer bank approves or declines, and it typically takes 3 days for the funds to be settled into the business bank account if approved.
someone doing a bank transfer

How much does online payment processing cost?

The cost of online payment processing varies depending on your provider and what extras you have included. Not all providers charge all of the fees listed below.

Some of the costs you need to consider include:

  • Set up fee - a fee to get your payment gateway set up and running.
  • Gateway fee - a standard fee charged per use of the payment gateway.
  • Monthly fee - an ongoing fee to keep your account open.
  • Minimum monthly transaction fee - some providers charge if you don’t process a certain amount of money per month.
  • Transaction fee - a fee to process the payment.
  • Chargeback fee - if your customers initiate a chargeback, you may have to pay for this.
  • Refund fee - if your customers request a refund, you may have to pay for this.
  • PCI Compliance fee - you may pay an extra fee for PCI Compliance measures.
  • Early cancellation fee - if you’re in a contract and want to leave early, you may pay a penalty.

You can compare the cost of online payment processing by reading our post on the best online payment systems.


How do I start taking payments online?

Ready to take payments online and want the best price? Here at CardSwitcher, we compare card processing prices from companies all across the UK. Click the link below to start comparing.

Compare over 20 of the best card processors

It takes just 30 seconds...

Written by:
Stephen Hart

Stephen Hart

Founder - Cardswitcher

Former - Chief Financial Officer @ Worldpay

Stephen brings a wealth of experience honed through years in the financial sector, particularly in the card processing payments industry. His illustrious career spans key roles at PwC, Natwest, and the role of CFO at WorldPay, before going on to found card processing comparison site, CardSwitcher. He is passionate about helping growing businesses to understand the card processing landscape so they can make savvy financial decisions.