The content of this article is provided for informational purposes only. You should always obtain independent business, tax, financial, and legal advice before making any business decision.
This article includes tips, suggestions and general information. We recommend that you always do your own research and consider getting independent tax, financial and legal advice before making any important decision.
As online shopping increases, many businesses are setting up digital shops to accept payments online and capture more sales. But after a customer hits ‘check out’, how does the money get to you?
Whether you’re expanding a bricks-and-mortar business to accept payments online or starting a new ecommerce venture from the ground up, it’s important to understand how online payment processing really works – who's involved, how you get paid and which processing fees apply.
That way, you’ll be prepared with a plan that is suitable for you and your business.
In this guide, we’ll cover the basics of payment processors for websites and ecommerce operations, from how it works to the many benefits.
To be successful, businesses may want to incorporate streamlined online payment solutions. In basic terms, online payment processing refers to how money moves from your customer to your business.
Though this may sound simple, many moving parts are involved in processing credit and debit card payments, whether online, via phone sales or even in person.
On one end is you, the business owner or merchant account.
On the other end is your customer.
And in between is a lot of technology that connects the two of you.
But before we dive into each link in the chain, it helps to understand the three key stages that a typical online payment travels through (authorisation, capture and settlement) via a secure, encrypted path.
From the moment a customer clicks ‘Pay’ to when the funds appear in your account, cutting-edge technology and multiple collaborators work together smoothly to move money and keep data safe.
The main moving part of online payment processing is the merchant. In this case, you or your business.
However, to accept credit and debit card payments from online customers, you will likely need to collaborate with one of the many available merchant account providers, including our PayPal merchant account.
This merchant account provider (sometimes called an acquirer) accepts payments on your behalf and deposits them into your business's merchant account. For instance, you can accept online payments with PayPal.
Wondering what is a payment processor?
Payment processors (or merchant account services) handle all the heavy lifting in online payment processing – from moving the transaction through the processing network to sending you a billing statement and working with your bank to make sure you get paid.
In other words, everything it takes to process online payments.
Often, your merchant bank is also your online payment processor, which helps simplify things.
One of the technologies involved in online payment processing that enables you and your customer to transact is the payment gateway. For us, it’s called the PayPal payment gateway.
This is software that links your site's shopping cart to the processing network.
For your customers to pay for your goods and services, they need a credit or debit card in most cases. The bank that approves the card (and lends them the cash to pay you) is called the issuing bank.
Online payment systems offer convenient, quick, and secure transactions, leading to improved customer experiences, efficient record-keeping, and helpful integration capabilities.
Adopting these systems can optimise payment processes and contribute to the overall growth and success of a business in the digital age.
Here are some advantages:
Online card processing systems provide a convenient and accessible way for customers to make purchases from the comfort of their homes or on the go. It eliminates the need for physical visits to stores or carrying cash, offering a smoothand low-hassle payment experience.
By accepting online payments, businesses can reach a broader customer base beyond their local area. Online platforms enable businesses to cater to customers from different regions and even international markets.
Online payments are typically processed swiftly, allowing for faster transaction completion compared to traditional payment methods.
Online payment systems often employ advanced security measures to protect customer information.
Online payment systems offer a smooth and user-friendly interface for customers to complete transactions with features like saved payment information, one-click purchases and automated recurring billing options.
Many online payment processing systems integrate with other business software and systems, such as e-commerce platforms, inventory management, and customer relationship management (CRM) systems.
As a business owner, it’s helpful to understand exactly what it looks like to process online payments. Or, in other words, how money moves from your customer to your business.
There are two stages to online payment processing: the authorisation (approving the sale), and the settlement (getting the money in your account).
When it comes to how card processing works, the authorisation process goes roughly like this:
In terms of online payments, all the above takes place quickly in most cases.
The second piece of the online payment system process (where you get paid) is the settlement:
The settlement process can take a few days. Sometimes, your bank lets you access your money before it’s even sent to them. They also may keep a portion in your account that you can’t touch — just in case the customer returns the item later (called a reserve in payments).
We’ve learned about how payments come in, but what about the other side of the coin?
What will it cost?
As you may have guessed, parties who touch the transaction wants to get paid may have to pay, including the issuing bank, the credit card association (Visa, MasterCard etc.), the merchant bank and the payment processor.
At its most basic, every time you process a sales transaction, you may have to pay four payment processing fees:
Usually, the first three fees (the percentages) are all added together and quoted as a single rate, while the transaction fee is quoted separately, so: x% + [transaction fee in £].
Most pricing structures generally fall into one of three categories:
All fees and rates in this article are examples for illustrative purposes only and do not represent actual PayPal pricing.
For information on up-to-date PayPal fees for merchants, please visit PayPal pricing.
When selecting a payment processor, match its capabilities to your needs and your customers’ expectations.
First, security must be rock-solid: look for end-to-end encryption, PCI DSS compliance and fraud-detection tools that keep both you and your buyers safe.
Your processor should plug into your existing website, shopping cart or POS with minimal fuss and offer developer-friendly APIs if you need custom workflows.
Don’t overlook payment method support.
Good providers accept not only major credit and debit cards but also digital wallets like Apple Pay®, Google Pay® and local options popular in your region.
If you offer subscriptions or memberships, make sure recurring-billing features are built in.
For businesses eyeing global markets and accepting global online payment options, multi-currency support and automatic conversion rates are crucial to remove any potential friction at checkout.
Transparent pricing is also key. Compare flat-rate, tiered and interchange-plus models to find the most predictable structure for your sales volume.
Ask about any setup, monthly or chargeback fees to avoid unpleasant surprises.
Test the waters with customer support (ideally 24/7 via chat, email or phone) so you can resolve any issues without missing a sale.
Speed and convenience go hand-in-hand so always evaluate how quickly funds will be cleared after a transaction. Some providers will offer same-day payouts.
By weighing up these factors, you’ll hopefully be able to find a collaborator that not only processes payments but helps accelerate your growth.
PayPal stands out as a complete payment collaborator for small and growing businesses.
With PayPal Checkout, you get a single integration that instantly lets you accept PayPal, credit/debit cards, PayPal Credit and (soon) local methods, all on your site without redirecting customers off-page.
That smooth experience of simply being able to click or tap PayPal’s payment button to make a purchase can seriously lift conversions.
Beyond the online checkout, PayPal’s platform supports subscription management, so setting up recurring payments, trials and renewals is a breeze and can all be done automatically. Your buyers see consistent branding, and you see consolidated reports for all transaction types in your Business Dashboard.
On the security front, PayPal deploys multi-layer fraud prevention, encryption and real-time risk scoring to protect transactions worldwide. You benefit from buyer and seller protection* policies that can build trust and reduce disputes. With coverage in 200+ markets and support for over 100 currencies, PayPal makes it easy to expand internationally.
The breadth of PayPal’s REST APIs and SDKs can help developers. Whether you need a simple buy-now button or a fully custom checkout flow, you can tailor the integration to any platform.
If you already use a POS system, PayPal’s point of sale tools sync your in-store and online sales into one view, simplifying reconciliation and reporting.
In short, choosing PayPal means choosing a unified, secure and scalable payments ecosystem that grows as your business does.