Electronic payment processing


The popularity of online commerce makes it a prerequisite for the sustainable development of a company to have its own website. Without it, the company loses many potential customers. Statistics show that in 2022, the majority of people in Russia prefer online shopping to offline outlets. The customer does not even need a physical plastic card to make an online payment. It will be enough to have money in a virtual card account or an electronic wallet.


How do I sell my products online and arrange to receive online payments? Read below.


What is electronic processing?


Processing is the technology that automates electronic payments and allows them to be accepted and rejected. It is through it that customers can pay for goods on the website using plastic cards.


Simply put, it is a program that automatically checks your card details and, if all is well, transfers the money to the online shop.


Processing can sometimes be confused with the concept of acquiring. Internet acquiring comes before processing in the chain of payments from buyer to seller. This process transfers your data to a payment processor or, another name for it, a processing center.


It is worth noting that acquiring and processing are inextricably linked, and therefore one cannot exist without the other.

A processing center provides processing services. A well-known processing center is, for example, Visa. To ensure that online payments are processed in a matter of seconds, such centers operate around the clock and smoothly.


The payment gateway is responsible for the accuracy and security of the card details provided. Once the card details have been verified, the gateway makes all decisions about whether or not the transaction has gone through.


Payments may fail if banks have information that:


  • you have entered the details incorrectly;

  • you have insufficient funds in your account;

  • your bank account is frozen;

  • you are trying to pay with a stolen card.


Thus, payment processing is an important part of the complex and sophisticated process of processing Internet payments. It does not consist of a single technology but of many different ones.


Without any of these components, it would not be possible to pay online with bank cards.


How does payment processing work?


The easiest way to look at this process is with an example. Let's imagine that a customer has already decided on a product and wants to pay for it.


In addition to the buyer and the seller, the processor will be a participant in the process:


  • Payment system. For example, Visa, Unipay, or Mir;

  • A processing center whose task will be to process payments;

  • An issuing bank. The one whose name is on your card;

  • The acquiring bank. The one who will accept the payment from the buyer.


What is behind bank card processing?


  • The buyer chooses an item and presses the "pay by card" button;

  • He enters the details of the card required for the transaction: expiry date, number, and CVV code;

  • Primary data processing takes place: it is encrypted by the gateway;

  • The data goes to the processing center. If the processing center decides that the transaction appears suspicious, the processing is interrupted, and the card is added to the list of potentially fraudulent cards. If all is well and no rules are broken, the merchant will be notified that the acceptance is successful. Then the data goes to the acquiring bank;

  • The acquirer receives the data. The acquirer then asks the issuing bank for the account balance;

  • After checking the balance, the issuer sends this information back to the acquirer;

  • The bank processing center receives the result of the processing from the banks: refusal to accept the funds or consent to carry out the transaction;

  • If successful, the money is sent to the company's account, and the merchant is happy with the message that the online payment was successfully completed;

  • The buyer is informed that he has made the purchase.


As you can see, bank card processing works on the principle of constant checks of the merchant's specified data for payment acceptance and the buyer's card data.


Legal position of the processing centers


The development of e-banking systems is a good thing, but what about the legal regulation of payment systems?


  • Every company providing Internet acquiring services must comply with a set of obligations and obtain the necessary license - IPSP Licence. This license allows a bank that issues its cards in the MasterCard or Visa payment system to debit money from one account and transfer it to another.

  • Also, major market companies, like Visa, have their own documentation to regulate the world of card payments.

  • Sometimes, following the development of e-commerce, processors create their own banks. But most deal only with payment transfers, contracting with a multitude of banks. Such processors are commonly referred to as 'pure' processors.

  • "Pure payment processors are independent of banks' policies. They do not have any obligations to their depositors. Therefore, they can offer a company that uses their services a lower fee than a bank.

  • Moreover, cryptocurrency payments are available, which can be used profitably by the merchant to grow the business.


Since the financial sector is always very strictly controlled by the government, any such payment services are strictly regulated by law.


Processing systems types


Processing systems are not ready to work with every business.


They are divided into three types according to the type of business the service works with:


  • "White" processors. Most are legally registered as residents of the country in which they are located. Such systems are completely law-abiding and work with low-risk and law-abiding businesses. The advantage of such services for legal entities is that the fees are much lower than for other types of processing, and the connection is easy;

  • "Grey" companies are just as common as "white" companies. But they are more often registered in offshore or low-tax jurisdictions. They operate a wider range of businesses: online dating sites, adult pages, online pharmacy shops, and other high-risk services. However, it is more difficult to establish payment acceptance with such a company, as it requires personal acquaintance or reputation to cooperate on 'gray' things. The price for their services is higher;

  • The highest price will be paid for the use of "black" processors. They accept payments for any kind of Super High-Risk business, even those outside the law. However, it is also impossible to negotiate transactions or access such services as a man in the street. They are very well secured. In addition, such services are very often "covered up," so the owners of trusted companies risk losing money.


As you can see, the safest services are the cheapest. However, the market can provide payment systems for all tastes.


How is the security of electronic payments monitored?


It is not easy to set up your own payment system and enter the online acquiring market. It is also necessary to meet the security requirements imposed by governments and market sharks.


So first, you have to get a PCI DSS certificate which has to be approved every year. The main requirement of this community is that information about card data must be restricted as much as possible.


A prerequisite for good processing is the availability of encryption for data transmission.


In addition, 3-D security is used as another means to keep your funds secure. This technology forces the payer to authenticate themselves one more time before they can use the card. For example, a code that comes via text message to the cardholder's phone number.


As the e-commerce industry keeps developing, new methods are evolving to protect the data of buyers and sellers. This gives both parties peace of mind that their money will get where it needs to go.