How Online Payment Systems Work

How Online Payment Systems Work

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The world of online payment systems can be complicated, with lots of options to choose from. But online payment systems can be an opportunity for merchants to boost revenues by creating a better buying experience for their customers. In this article, we’ll explore how online payment systems work — and how you can integrate them into your business. 

What are online payment systems?

Online payment systems simply enable the trade of goods and services on a merchant’s website or app. It handles the entire process from providing a secure way for the customer to enter their card details, to authorising the transfer of funds from the customer’s bank account to the merchants’. Online payment systems seek to provide the fastest and most secure way for this to happen, helping sellers turbocharge revenues. 

How do online payment systems work?

Online payment systems consist of three layers — a payment processor, a payment gateway and a merchant account. 

A payment processor handles the relationship between a customer’s credit/debit card and the merchant’s bank account, verifying whether the customer has enough funds to be transferred across. The payment gateway provider operates between the banks, the credit card providers, and the payment processor. It takes care of security using an encrypted system to ensure funds are transferred quickly and safely. A merchant account is a unique type of bank account that enables merchants to accept credit and debit card payments. 

That leaves a choice for the merchant: integrate an online payment system, or build it themselves. Building a payment system online is time-consuming and complex, with multiple layers to the process. Integrating a 3rd party online payment system allows merchants to plug and play, with an end-to-end system that handles the entire process while taking a small transaction fee. For both options, the merchant bank will usually also take a transaction fee. 

Benefits of online payment systems

There are multiple benefits of online payment systems. Here are some of the key advantages for merchants:

Flexibility - Online payment systems allow merchants to embed a gateway at any point in the buyer journey, leading to a better customer experience.

Customisation - Online payment systems allow merchants to customise pricing and offers to cater for different types of customer. This means businesses can offer packages, buy-now-pay-later, recurring payments, and reductions on goods and services, for example.

Speed - Using the lightning-quick speed of payment systems provides value over slower options such as bank transfers. Providing a sped-up journey from buyer intention to a sale can boost revenues and retention. Not all online payment systems offer rapid checkout, though — iwocaPay allows customers to pay within 3 clicks. 

Accounting - Online payment systems may integrate with accounting software such as Quickbooks or Xero, allowing the merchant to categorise transactions. This simplifies filling accounts at the end of the year, providing full visibility of financial metrics. 

Security - Allowing all payments to go through an encrypted gateway reduces the chances of fraud and money laundering, while keeping funds safe.

Go Global -  Some online payment systems can enable businesses to sell to international clients as they connect to global clearing systems and enable currency conversions on the spot. This means merchants can reach buyers from other markets. 

How to create an online payment system

  1. Consult experts in the field of payment compliance and security, while designing the systems architecture to be coded in-house or by an agency. 
  2. Set up a hosting platform and get a Secure Socket Layer (SSL) certificate.
  3. Build the payment form to appear when customers want to pay.
  4. Find a suitable payment processor that gives you the ability to process various types of payments.
  5. Connect your payment processor and your merchant bank with the payment form.
  6. Test the online payment system to see how it will perform under stress.
  7. Conduct regular troubleshooting and bug fixes for maintenance.

How to integrate an online payment system into your website

If building your own sounds complex and costly, you should consider integrating a 3rd party online payment system into your website. Established providers can offer a customisable, integration that lets you plug an online payment system straight into your site, without knowing how to code. First, you’ll need to decide which provider offers the best service for you. More importantly, you should assess how the payment providers’ pricing model fits in with your own business model.

Some options include Worldpay, Stripe, PayPal, Shopify, Amazon Pay, Obayo and iwocaPay. These may be suitable for you if you have an Amazon FBA store or Shopify site, for example. As a B2B merchant, you may also want to consider a more streamlined payment experience.

iwocaPay offers a two-click solution that provides merchants with an easy checkout experience. It’s built on open banking which means payments are streamlined and secure. With iwocaPay, you can take all your payments without paying a penny, or let business customers spread the cost over 90 days interest-free for a fixed fee.

Main benefits of iwocaPay

  • Integration with Xero
  • Free to use when using ‘Pay Now’
  • Collect payments in two clicks
  • Instant funds without a chargeback risk.

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Article updated on:
March 27, 2023

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How Online Payment Systems Work

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