June 19, 2017 | Categories: Payment Processing Back to list

The Lifecycle Of Online Payment Processing

The Lifecycle Of Online Payment Processing

Paying for an item online is simple enough, but there’s an awful lot that goes on in the background to make this possible. Likewise, there are several stages a payment has to go through so that it can be securely deposited into the merchants account once the transaction has been completed.

This article will take you through the lifecycle of online credit card processing. and exactly what buying an item online entails. However, let’s start with the daily volume of online transactions.

Volume of Online Transactions

While similar processes are carried out for offline payments, online transactions deserve some extra attention due to the sheer volume of that are processed every day.

Back in 2014, it was Amazon and eBay taking the lion’s share of online payments, mainly by credit and debit card. Back then, it was calculated that there were $1.2 million worth of transactions carried out during every 30 seconds.

In 2015, the UK Cards Association estimated that £19,000 worth of online transactions were processed every single second in the United Kingdom alone.

And in 2016, the likes of Amazon and eBay still dominate, with ecommerce giant Amazon taking more than $3,000 every second, according to recent figures. And these figures are likely to grow year and year as online shopping continues to take over

However, online payment processing it isn’t just vital to the giant retailer: due to the move towards internet shopping, more company owners are turning to the internet as a means of growing or establishing their business –  and they all need access to an efficient means of processing online payments.

Different Companies, Different Approaches

Before continuing, it should be made clear that the lifecycle behind online payments might vary to a degree depending on the payment processor you are working with, whether you are using a third-party processor, and, of course, on the selected payment method.

This article explains the usual process that an online credit card payment will go through. However, if you have questions regarding a specific company and the way they handle their processing, or with a particular payment processing method, then these can usually be answered in the FAQ or through speaking to their customer services department.

Various Parties Involved in a Transaction

In each offline transaction, there are five main parties involved. Many of these processes are similar for online card payments, however, there are some differences –  mainly the addition of a payment gateway, which is the software provided by your payment processor to make online transactions possible.

Here are the main parties involved in an online card payment:

  • The cardholder, who starts the process when they initiate the transaction.
  • The payment processor or the acquirer, whose job it is to supply the tools merchants need to accept payments.
  • The issuing bank, who provides the credit card and the card scheme. The main ones are Visa, MasterCard, American Express and Discover.
  • Merchant bank/merchant bank account, where the payments are securely deposited.
  • A payment gateway, to authorize and process the payment. The gateway also uses encryption to provides a secure environment for the payment details.

Once the customer has made the payment, it will be passed on to the next phase, which is authorization.


Whether you’re using Authorize.net, payeezy, USAePay, or any other payment gateway, the authorization stage will check whether there are sufficient funds to cover payment. In addition, other checks will be carried out at this point, such as determining if the payment is genuine.

At the authorization stage, a request will be sent from the merchant to the payment processor. However, no payment will be released at this point and the transaction can either receive approval to go ahead or it can fail and the merchant will receive an error code.

If authorization fails this could be down to several reasons such as:

  • Insufficient funds
  • Address anomalies
  • Fraud concerns

A detailed list of error codes can be found online.

If the payment is accepted, then the merchant will be sent an authorization code and the payment can move on to the next phase.

Payment Gateway & Settlement Request

Next, a settlement request will be made from the merchant to the payment gateway.  Once the customer has submitted the payment, processing it requires an interaction between the payment processor, acquiring bank and the credit card issuer; it’s up to the issuing bank to check details like the credit limit and whether there are sufficient funds available.

If the payment is accepted, then the payment processor will then authorize it.

Its at this stage that the money will get removed from the buyers account then added to merchants account. With the transaction has been approved, the buyer will receive notification that the payment has been accepted, and it will appear on their credit card bill at the end of the month.


The final stage is settlement, where the payment will be sent to the merchant’s bank account and to the merchant themselves.

However, for the settlement to be completed, the retailer has to submit their batches of cleared or authorized payments to their acquiring bank ready for the payments can be settled.

Settlement times will vary from processor to processor, and can sometimes range between 1.3 days. However, many payment processors offer next business day settlements, with Friday transactions being settled on a Saturday, and Sunday transactions settled on a Monday.


As you can see, although online transactions take just seconds, there’s a lot going on during the lifecycle that the buyer and seller won’t always be aware of.

However, despite the complexities – and the millions of online payments that are carried out every day –  these transactions are carried out efficiently and effectively. With the up-to-date payment processing tools that are available today, these transactions are completed in just a matter of seconds.

Online payment gateways also provide a secure platform so both the buyer and seller can feel confident that transactions made through their site will be carried out safely.


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