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How does Ecommerce payment processing works

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The GoCardless content team comprises a group of subject-matter experts in multiple fields from across GoCardless. The authors and reviewers work in the sales, marketing, legal, and finance departments. All have in-depth knowledge and experience in various aspects of payment scheme technology and the operating rules applicable to each. The team holds expertise in the well-established payment schemes such as UK Direct Debit, the European SEPA scheme, and the US ACH scheme, as well as in schemes operating in Scandinavia, Australia, and New Zealand. See full bio

Last editedMar 20222 min read

Starting an online business can be greatly rewarding, especially if you put the work in to have a beautiful website and a smart marketing strategy. But to make the most of those crucial elements of an ecommerce business, you must ensure you have the correct ecommerce payment processing solutions in place.

Learning how ecommerce payment processing works can be a complex and sometimes confusing process. But while it is true that the technical aspects are complicated, you don’t have to be a technical expert to understand the bare essentials that allow you to get your online business up and running.

Here we will discuss how payment gateways and payment processors work together to allow secure online transactions.

Ecommerce payment processing basics

There are two main elements which enable ecommerce payment processing to work. These elements work together to simplify the online checkout experience for customers and ensure the transaction is secure. These ecommerce online payment processing elements are:

The payment gateway
The payment processor

Payment gateway

A payment gateway is an online payment service integrated into the ecommerce platform, such as a retail website. A payment gateway connects an ecommerce platform to the payment processor. It is this gateway that collects the customer data required to make a transfer of funds from the customer’s account to the merchant account.

It is via the payment gateway service that customers are able to make payments for their online purchases, with the payment gateway often offering a variety of payment options such as credit or debit cards and online payment providers like PayPal or Stripe.

Payment processor

The payment processor receives the payment information entered through the payment gateway and communicates that information to the merchant account of the ecommerce business. The payment processor is the intermediary between the online store and the merchant account of the online store. It is the payment processor that takes the money from the customer’s account and places it in the merchant account on behalf of the customer.

Payment processors transmit the payment data from the customer’s bank to the merchant’s bank via online transactions. They also provide brick and mortar merchants with any physical equipment required to accept credit- or debit-card-based transactions.

How ecommerce payment processing works

The first step of the ecommerce payment process is opening the payment gateway. This happens when a customer initiates a purchase online and enters the details for payment, such as their credit card information. This happens after they have added something to their basket and then clicked on the checkout option.

The second step involves the payment gateway transmitting the encrypted payment data to the payment processor. The payment processor then communicates with the card-issuing bank to check the transaction. It then proceeds to deduct the purchase total from the customer’s account once the bank authorises the payment.

The payment processor then informs the payment gateway that the payment is authorised by the card-issuing bank (or not, if there are insufficient funds in the account, for example). The payment gateway will also notify the ecommerce website of the bank’s authorisation at this stage, although the funds will not yet have arrived in the merchant account.

The final step is when the money deducted from the customer’s account is deposited in the merchant’s account.

We can help

GoCardless offers an online payment system perfect for recurring and non-recurring one-off payments. Our system enables your customers to easily pay and your business to receive recurring payments, such as subscriptions, via Direct Debit.

Once customers have been set up for their payments, your business will also be able to receive one-off payments also by Direct Debit. Alternatively your customers can also use Instant Bank Pay (powered by Open Banking) to make a same day, ad-hoc payment.

If you’re interested in finding out more about ecommerce payment processing, or any other aspect of your business finances, then get in touch with our financial experts at GoCardless. Find out how GoCardless can help you with ad hoc payments or recurring payments.