How do online payments work?
In terms of transaction processing, online payments work the same way as in-store payments.
The major difference between paying on online and offline channels is the user experience: In a brick-and-mortar store, a consumer pays by giving the retailer a credit card (or another form of payment), whereas online users manually plug in their payment information by filling in fields on an online checkout (like credit card numbers, CVV numbers, and other associated authentication details).
While these actions seem different, they both represent the same step of the payment process – providing the payment method to be used for the transaction.
Once the payment method has been provided, the backend process is identical for online and offline payments.
· The consumer’s payment data is transferred through a technology called a payment gateway, which ensures the data passes securely to the payment processor.
· The payment processor, or acquirer, processes the payment data and communicates with the consumer’s credit card network or bank (“issuer bank”) to make sure the payer has sufficient funds to complete the transaction.
· Once the payment is authorized by the credit card company or issuer bank, the processor informs the e-commerce site or in-store retailer that the transaction has completed successfully. The checkout process is finished and the purchase can be conveyed to the consumer.
As retailers increasingly adopt omni-channel retail strategies and consumers choose to conduct their purchases at shifting touch points (online, brick-and-mortar, mobile), there is pressure to create an optimized user experience at every retail channel. With the growing popularity of mobile payment methods, alternative payments and e-wallets, it will be interesting to see how the front-end payment process will change as retailers try to meet the demands of their consumers across channels.
For more information about how to optimize the shopper’s experience at every channel, read our guide: Enhancing the Retailer’s Omni-Channel Offering