How do Credit Card Payments Work? Take credit cards online.
Take credit card payments on the internet.
If you sell to customers you need to accept credit cards. But how do credit cards payments work? What do you need to know to run your business? To accept credit card payments from your online customers you’ll need to know how credit cards work. Don’t worry it’s not a complex process. We have put everything into a summary for you below.
How do credit card payments work for a website?
Our goal with this website is to educate businesses of all sized on how to use credit cards to make sales online. Let’s cover some basic things.[plain](1) How do cards work in an online payment?
(2) How do I (the merchant) get paid?
(3) What are things about the card payment that I should know? [/plain]
How do credit cards work in an online payment?
If you’re selling online in the US you need to take credit card payments. You won’t make many sales without credit cards. You won’t sell anything at all. Luckily taking credit card payments online is well oiled machine and it’s easy to get started. Let’s explain with the diagram below.
Your customer starts by making a purchase from your online store. The customer adds a product to a shopping cart. A shopping cart online is nearly the same thing as a shopping cart at a grocery store. Both are a place to collect items for purchase while continuing to shop. When your customer is ready to checkout they click on checkout. The payment process will now begin. Here are the steps:
- If your customer does not have a credit card on file with you or your payment gateway, the customer will be asked to add one. This means the customer will also be required to give their name, shipping address and email.
- Once this information is collected the customer can click on a submit button and this send the payment to your payment gateway.
- Generally websites will send a message over the web to the payment gateway. This is often called an API call, a web call or sending a message. It’s all the same thing. A set of information is sent to the gateway about the purchases.
- The payment gateway checks the information it receives to ensure the information is complete.
- The payment gateway then sends the information to the payment processor.
- The payment processor does a check to make sure the information is complete and then forwards the information to bank that provided the credit card to your customer.
- The bank receives information from the payment processor. More importantly, the bank check to make sure the credit card is a good card and not fake. Then the bank checks to see if there is sufficient money that can be reserved on the credit card for the purchase. Sometimes the customer will have been on a massive shopping spree and exceeded the maximum amount on credit card and bank will not allow more purchases. If all of these checks are ok the bank will send an approve message back to the payment processor.
- The approve message travels back through the same route to you the ecommerce girl or guy who is trying to make a living.
- Whew. That’s a lot of stuff. But it all happens in a second or less.
What else do I (the ecommerce business) need to know?
When do I ship the product to the customer?
What we just explained above is the credit card authorization process. This is the biggest part of how credit card payments work. Once you’ve received a successful authorization you need to ship your product to your customer within 48 hours or less. Why 48 hours? This is the recommended time period by the credit card companies. It’s also a courtesy to your customer. If you don’t have the product in stock but sold it on your website anyway, you need to get the product within 48 hours or cancel the order.
What happens if the authorization is declined?
How do I (the merchant) get paid?
You get paid by your payment gateway. Your payment gateway normally pays you anywhere from 2 to 14 days after the transaction. Your payment gateway will require you to setup a merchant account. A merchant account is basically a bank account where you receive your money. Sometimes there are additional fees and charges for having these types of accounts. But the account is basically just a simple bank account.