The Secret Life of Payments: Inside Your Online Payment Processor

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Understanding the complexities of how online payment processors work is a bit like the inner workings of a pinball machine.

There are a lot of moving parts that must act fast, a lot of hidden spots for money (the ball) to travel during a credit card transaction, and plenty of unforeseen areas that add risk to the equation.

To better understand this ecosystem, it’s best to follow the old philosophy of “follow the money.” By examining how online payment processors work, and how transactions move within and between multiple channels, you can gain better insights into the secret life of payments.

Payment processing itself is complex for card-present purchases made in person, so when you’re thinking about card-not-present transactions made via an online payment processor, this equation gets a lot more complicated.

Digging Deeper: How Online Payment Processors Work

Because business owners are so busy running day-to-day operations, and worrying about their bottom line, there’s not always time to think about how their payments are actually processed. Most business owners simply want a system that works well, fast and protects them and their customers; they don’t want to worry about the logistics of how their online payment processor works.

For businesses to ensure they are protected, they must understand the risks that exist within payments, and how money travels across channels. Here’s a brief explanation about how online payment processors work.

Once a consumer selects how they want to pay online, they then type in the necessary information to submit payment. From there, the card-issuing bank then gives approval for the transaction. Through this process, which typically is done within seconds, businesses are able to offer online payment methods to their customers in a safe and convenient way.

What it Really Means to “Follow the Money”

Of course, nothing is as simple as the process described above. There are a lot more steps involved in the intricacies of how online payment processors work.

A payment is first sent to a payment gateway to get the process started. From there, it’s approved by the acquiring bank’s processor – which then sends the process to approval by the issuing bank. If funds are available, or if the buyer’s credit limit isn’t maxed, the issuing bank approves the purchase. Once approved, the money is sent to the businesses’ acquiring bank and the funds are deposited into their account.

Quite the game of pinball, indeed.

Where Risks Exist When Using an Online Payment Processor

What makes the process even more challenging is that consumers expect payments to be instantaneous, while still being secure. This multi-step process is also backed by hefty payments industry regulations and compliance protocols that must be adhered to in order to use an online payment processor.

Of course, the first word that comes to mind when thinking about payments risk is the concept of fraud and the growing number of fraudsters penetrating the online payments ecosystem.

New data from Javelin shows the influx of stolen credit card for online purchases, which saw a 40 percent surge in just a one-year period between 2015-2016. This isn’t because online payment processors are becoming less safe, it’s because fraudsters are getting smarter with the tactics they use.

Because of this growing threat, online payment processing companies must always stay ahead of the curve in order to be prepared for future security threats. After all, when you’re aware of where threats can exist, you’re more likely to be able to identify security threats and potential gaps in your own systems.

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Anna Kragie is a content contributor for Payline Data. She previously wrote for, as a Sr. Content Producer, where she focused on financial services and payments innovation, fraud and security, emerging payments, and FinTech news, research and thought-leadership content across the payments industry.

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