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An Overview of How Digital Payments are Processed

February 16, 2021

Setting up an e-commerce website, especially the technological framework, can be quite a cumbersome process without expert guidance. One of the most important aspects of an e-commerce website is the technology used in the payment gateway, also known as e-payment technology. This technology serves as the backbone of the entire system and helps to process all the payments going through the payment gateway installed on your website.

What is an E-payment System?

An e-payment system helps you to either pay for goods and services or receive payments electronically. It is also called an electronic, digital, or online payment system. In this system, there is no direct interaction between the buyer and the seller. The e-payment system acts as the gateway connecting the customer and the merchant. This system is handled by a payment gateway provider.

Technology Used in E-payments

The technology used in an e-commerce transaction includes technologies for communications, processing customer data as well as financial data, data storage etc. This process comprises of ‘front-end’ and ‘back-end’ activities. Front-end activities are those at the user’s end. The most common technologies are smart cards, transponders or tags, and smartphones. Back-end activities include payment processing, account maintenance, customer service, and reporting. These activities are handled by the payment gateway provider.

E-Payment Process

An e-commerce transaction involves two factors: the payment gateway, and the payment processor. The payment gateway is the software on your website that connects the customer, your website, and the banking network. The payment processor, meanwhile, works in the background to ensure that the entire transaction passes off without a hitch.

Payment Processor

The payment processor is the most critical part of any e-commerce transaction. This is where all the heavy lifting happens. This part of the process is quite complicated as it involves multiple financial organizations, each of which levies a difference service charge. Be sure to research and study all the rates and pricing involved.

There are two steps in payment processing:

Step 1 – Authorizing or Approving the Sale:

When a customer visits your website and purchases a product with a credit/debit card, the information received from the card is transmitted through the payment gateway where it is encrypted and sent to the processor. The processor then requests the issuing bank (customer’s bank) to check if the customer account has enough money to pay for the product. The bank responds with a yes or no. The processor sends the information to the customer and tells your bank to credit the amount to your merchant account. This is a lightning-fast process and takes just about a couple of seconds.

Step 2 – Settlement of the Claim

The second step in this process is where the customer’s issuing bank transfers the funds to your merchant bank, which, in turn, credits the amount in your merchant account. When you check your account, the amount is available for your use. This step might take a few days.

With the increasing penetration of the internet, more and more people all over the world have begun using the internet to purchase goods and transfer funds. It is always advisable to find out what your target audience needs and provide the most convenient and relevant e-payment system. The e-payment technology used by your payment gateway service provider must be robust and able to thwart fraudulent activities. A strong system can greatly enhance the functioning of your website as well as the user experience.

If you are looking for payment processing solutions, get in touch with a reputed firm that offers customized solutions to meet your specific business needs and requirements.