Valentyn Rogovskyy
Blog post

How Online Payment Processing Platforms Work

Find out how payment processing helps businesses to thrive in financial technology domain

April 18, 2018

7 mins read

5.0 1

With modern technology and innovative software, your business has almost no limits. Even a small souvenir shop in the countryside can go global thanks to a website and eCommerce.

But one of the most significant challenges with internet sales is accepting payments. Though it sounds like no big deal, transferring money requires a complicated FinTech solution, combining multiple solutions into a single payment processing platform.

To understand what your business needs, you have to understand the payment processing industry. What is an online payment processing platform and how does it work? What are the main components and requirements for this kind of FinTech software? Luckily, Intellias has experience in FinTech development and will help you sort everything out.

eCommerce payment processing is a modern necessity

People look for fast and easy ways of doing everything, from business communications to online shopping. When you provide consumers with the possibility to buy something with a touch of a finger, your business tremendously benefits in terms of both income and business process efficiency.

Here’s where e-payment processing comes in handy. It doesn’t matter whether you own a brick and mortar store or work via the internet only or whether you’re involved in the hotel business or financial services. You have to understand the how-to’s of online payment processing if you care about your business.

According to the American Express Digital Payments survey, 71% of merchants agree that their annual online and mobile sales are increasing, and Dun and Bradstreet’s report states that consumers spend 12% to 18% more when using credit cards than when using cash.

Transaction Value in the “Digital Commerce” segment amounts to US $2,873,774 m in 2018. Transaction Value is expected to show an annual growth rate (CAGR 2018-2022) of 9.2% resulting in the total amount of US $4,083,110 m in 2022.

How payment processing works

Let’s start with the basics. There are three components of any payment processing platform.

  • Merchant account. This is a bank account that allows your business to accept online payments. You can receive a merchant account via a payment processing company, an independent contractor, or a large bank. Without it, you would have nowhere to keep the money your customers pay you.
  • Payment processor. A payment processing company or financial institution handles the transactions between your customers’ banks and your bank. They deal with such questions as credit card validity, available funds, card limits, and so on. One more essential function of the payment processor is security. It’s the responsibility of a payment processor to check whether card information is correct and to protect you from fraudulent activities. They also take care of various errors, accidental transactions, and incorrect charges.
  • Payment gateway. This is like an online point of sale. A payment gateway is a mediator between all transactions on your website and the payment processor. It connects your merchant account with credit and debit card issuers like Mastercard and Visa. You need a payment gateway because security measures forbid transferring data directly from bank to bank. So without a payment gateway, you won’t be able to receive your customers’ payments.

The entities involved in payment processing are the customer, the business, the payment processor, the payment gateway, the customer’s bank, and the business’s bank. Some payment processing software providers offer all three components, namely merchant account, payment processor, and payment gateway in one platform. Others combine a merchant account and payment gateway with a third-party payment processor.

Read more: Learn how Intellias helped a leading B2B software vendor build a certified payment platform and provide over 100 localized payment options

How Online Payment Processing Platforms Work

Here’s how credit card payment processing works:

  1. The customer picks up an item and pulls out their card
  2. The merchant submits a transaction
  3. The payment gateway securely sends the transaction to the processor
  4. The processor verifies and approves the transaction
  5. The customer’s bank sends money to the processor
  6. The processor sends money to the merchant’s bank
  7. The processor sends the status of the transaction to the gateway – either approved or denied
  8. The merchant receives the message of approval or denial
  9. The merchant receives the money for the sold item

These are the basics of every online payment. But there are yet more vital details.

Read more: Digital disruption: a threat or an opportunity for banking? Learn what trends you should follow

General requirements for online payment processing software

To create a payment gateway, you have to be a Member Service Provider (MSP) or an Independent Sales Organization (ISO). Usually, large banks provide all the necessary financial, corporate and technical requirements for companies to get MSP and ISO status. After becoming MSP or ISO, you’ll need to develop web and mobile apps for your payment gateway. You should allow merchants to access information from the backend so they can view history of payments, cancellations, and other transaction data.

Also, you have to follow the PCI Security Standards to provide payment processing solutions for customers. PCI Security helps vendors, merchants and financial institutions implement standards for creating secure payment solutions. There are strict PCI certification requirements that consist of 12 rules. To be able to fulfill credit card payments, a company has to pass a PCI DSS audit and certification. Your team of payment processing software developers has to include strong security experts to ensure high-level information protection. Here’s a checklist of steps you need to ensure compliance with a PCI Level 1 audit. This list was developed for an actual B2B payment processing platform:

  • Antivirus Policy
  • Cardholder Data Policy
  • Firewall and Router Policy
  • Information Security Policy
  • Password Policy
  • Physical Security Policy
  • System Configuration Policy
  • System Monitoring and Logging Policy
  • Testing Systems and Processes Procedure
  • Information Security Incident Management Policy
  • Inventory and Ownership of Assets Policy
  • Application and System Development Software Policy
  • Managing Service Providers Policy
  • Access Control Policy
  • Information Security Awareness Program
  • Information Security Responsibilities Policy Statement
  • Individual User Agreement Template
  • Data Classification Policy
  • Data Protection Policy
  • Data Management Policy
Intellias has specialists who can help you weigh the pros and cons of developing your own payment processing platform, so don’t hesitate to contact our FinTech experts right away
Get in touch

Payment processing software: is there a one-size-fits-all solution?

The answer is no. Yes, there was a time when typical card payment processing software satisfied the major requirements of small businesses. But things have changed, and the payment processing software market has expanded dramatically. This means that you don’t have to settle for less advanced solutions that aren’t exactly what you need.

Every industry has its peculiarities that require some custom features added to the basic scheme. Payment processing software for banks differs from software developed for the automotive industry. Financial institutions need to manage a wide range of payment channels – ATMs, point of sale terminals, eCommerce shops, and mobile transactions. A car rental company, on the other hand, needs to accept fleet cards and process large transactions. Every industry has its own specific requirements that influence the efficiency of business processes.

Read more: FinTech banking software development is becoming mainstream among traditional financial institutions

What does the payment processing market offer?

The market offers both turn-key solutions and custom software that covers specific issues and can be combined with other company’s software. Among the top payment processing platforms that offer a merchant account, payment processor, and payment gateway are such giants as PayPal, Skrill, Stripe, Amazon Payments, and Google Wallet. The advantages of using them include:

  • guaranteed fraud protection and personal data protection
  • multicurrency payment processing
  • availability of services in many countries
  • user-friendly experience
  • customized features
  • integration with shopping carts

Still, there are some drawbacks. PayPal, for instance, is not subject to banking regulations, so it can freeze your account and therefore your money at will. Other disadvantages include high rates for some types of payment processing, limitations on the number of transactions per day and amount per transaction, and security holes.

There’s also a variety of online payment processing software (i.e. merchant accounts, sometimes with a payment gateway). These platforms differ in their commissions and integration possibilities – some software is better for accounting while some fits fleet management best.

Another choice is an open source payment processing platform. But don’t think of this as free processing. An open source platform still has to be PCI-compliant (which costs around $20k annually); you’ll have to deploy it and maintain several nodes; and you’ll need to set up a relationship with an acquiring bank or a payment processor. Zuora and OpenAch are the most popular open source payment processing platforms.

In some cases, custom payment processing software appears to be more profitable than hosted solutions. Growing a business may require a more flexible and robust system. With custom processing software, you’ll have total control over your product, a solution that fully meets your business’s needs, and ownership of all APIs and functionality that you can then offer to third parties.

Read more: FinTech solves the problem of managing your financial assets, transactions, credit cards and bank accounts – securely, effectively, and simultaneously

One of the aims of payment processing platforms is to be easy as pie and engage customers that shop on your website. In the background, however, the several seconds it takes to process a transaction involve a whole bunch of FinTech processes. What’s more, the choice of payment processing platform requires a good deal of research, comparison, integration, and even development.

If you’re interested in meeting your business’s payment processing needs or providing payment processing services to third parties, you need to find online payment processing software developers. The process of building such a complex FinTech solution might cost you time and money, but it can benefit you in increased sales, the absence of fees, and optimization of business processes.


Intellias has specialists who can help you weigh the pros and cons of developing your own payment processing platform, so don’t hesitate to contact our FinTech experts right away.

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