How do online card payments work?

23/05/2020

Most people have used a debit or credit card to buy something online, but there is an element of mystery as to how card payments work from a business perspective. If you are setting up a new website involving online payments, or if you have an existing website that you are looking to expand and begin taking card payments, we hope this gives you a brief introduction.

Payment gateways

A payment gateway is simply a company that will process the card details for your website. Most offer a variety of solutions and you must understand the different solutions and your responsibility to keep card details secure under the PCI (Payment Card Industry) regulations. The payment gateway will process the payment and then allow that money to move to you after the transaction.

There are many different gateways that you can use to take a card payment online. Historically it was fairly limited with PayPal, WorldPay, the major banks and a few smaller players. These days there are many more and for most clients we recommend looking at Stripe.

Charges

In return for processing the transaction the payment gateway will take a portion of the payment amount. Normally this is a percentage of the transaction and often with a small fixed amount. For example, Stripe takes 1.4% of most UK cards plus 20 pence. PayPal is higher at 2.9% plus 30 pence.

Some payment gateways will also charge other fees away from the transactions and we would always suggest that these are not necessary. Typically, they could be a set up fee and a monthly or annual fee.

Type of payment

Most ecommerce websites that we design handle one off payments however you can also use some payment gateways for recurring card payments (a bit like a direct debit or standing order) so that you can set up an ongoing relationship with the customer.

Recurring payments are offered by several payment gateways and you will need to research the ongoing failure rates as these do vary and will need to be managed around the service being provided.

Getting the money

After a payment has been made you will of course want to receive the payment, less any fees, into your bank account. There will be a delay in this, in a similar way to if you send a payment from one UK bank account to another via CHAPS rather than BACS or Faster Payments, however in the last few years this time has been reduced.

When exploring payment gateways ensure that you investigate this aspect as the requirements will vary between different businesses from a cash flow perspective.

Charge backs

A chargeback process is an important consideration for all businesses taking payments. In simple terms it is where a successful payment is made and then further down the line the payment is queried, and the bank then potentially blocks the payment. Most payment gateways will have a process for this but of course as a business you may have already delivered the product or service.

In summary

Online payments are fairly simple assuming you have a clear idea about exactly what you are trying to achieve. If you would like any help exploring this area, then please get in touch and one of our team will be happy to offer some advice.

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