February 7, 2023

How Online Payments Work: Payments 101

With the development of new technologies, we’ve all become accustomed to newer, more secure payment options such as the ones we see online. Nowadays, you can do your groceries and shop for new clothing online and simply pay by PayPal or by card.

Despite this, only a few shoppers think about how exactly the online payment system works. All they know is that at the click of a button, the money gets withdrawn from their account. 

However, knowing the way you pay for your everyday commodities works can be beneficial for multiple reasons. We’ll list just a few below, as well as why it’s important for businesses to offer multiple payment methods. We’ll also explain how online payments work, making this a complete payments 101 guide!

Why is it important for a website to have multiple payment methods?

Websites need multiple payment methods to cater to a wide range of audiences. For example, the most widely used casino payment methods allow users from all over the globe to pay and play on their websites. This, in turn, attracts more customers to the online casino. They can have a pleasant experience knowing they don’t have to go out of their way to make a payment on the website. This is especially true if you use famous payment services such as PayPal, as nearly everyone has a PayPal account.

Second, multiple payment methods help websites build trust with their audience. This is another aspect of having multiple payment methods on a website that keeps customers returning. Knowing they can have a safe experience with payment on the website is crucial for any customer. If a customer knows they have several methods to rely on, they’ll feel safer if one of them happens to fail for whatever reason. 

If the website uses cryptocurrency as another payment option, this could also attract more revenue. There are lots of crypto investors and believers out there who advocate for different uses of their currencies. 

Why should you know how online payments work? 

When you have an understanding of how online payments work, you’ll be able to make smarter payment and purchasing decisions. Additionally, you’ll be able to spot an unsafe payment option easier and avoid using it. 

If anything goes wrong during your purchase or while making a payment at any time, you’ll know what to do and how to do it. While this requires a bit more reading up than usual, it could help prevent big financial mistakes.

Finally, once you understand how online payments work, you’ll gain a better understanding of which payment method is the best. 

How do online payments work?

Online payments, while seemingly instant and simple, are more complex than you might think. There are six parties involved in the entire payment process; the customer, the company, the payment gateway, the payments processing company, the customer’s payment system, and the customer’s bank.

Let’s imagine that you want to buy a new headset online for $100. Once you enter your payment details and click ‘buy now’, all the data you just entered is encrypted by the company’s payment gateway. After encrypting, it passes the data on to the payments processing company.

The payments processing company then sends an authorization request to your payment system. Depending on what you use, this is usually VISA or MasterCard. The payment system will check with the bank to ensure you have enough money in your bank account to pay for the headphones.

After the bank confirms the availability of the funds, they charge the $100 from your bank account and send it back to the payment system, which gives them 30 cents in return. After confirming the sale, the payment system sends the $100 to the payments processing company. Additionally, they’ll bill the payment processing company 30 cents along with a 2-cent fee. 

The payments processing company does the same, passing on $100 to the payment gateway. They also charge the seller a total of 50 cents, covering the 32-cent fee they received from the payment system as well as an 18-cent fee. The payment gateway then confirms the sale and charges an additional 10 cents to the seller.

Finally, the seller receives $100 and pays a total of 60 cents for the transaction. They can now send out your headphones and you will receive an order confirmation.

Overall, the payment process is a long but decently quick one. You can enjoy your new headphones in a few days.

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