How Online Credit Card Transactions Work

When you find a product to purchase online and initiate an online credit card transaction, you’ve entered into a quick, but rather complex process. While most of it is invisible to you, a rapid interaction begins among several computers in many different locations. Here is a look at how online credit card transactions work.

Steps for Using Credit Cards Online

Starting the purchase process by entering your credit card number and other personal data into a secure checkout page initiates a rapid chain of communication among several different companies. Within seconds, seven participants are involved in each online credit card transaction, and the steps are as follows:

  1. You, the consumer, complete the order process by entering your credit card information on a secure web page. Your credit card information includes your credit card number, expiration date, billing address and usually the Card Verification Value (CVV) code from the back of the card.
  1. The merchant’s website sends the information about the order and your online credit card data to a payment gateway, an online company that can handle the merchant’s payments. An online purchase is called a Card Not Present (CNP) transaction, and the use of the payment gateway is equivalent to the traditional card swipe made in stores.
  1. The payment gateway immediately sends the information to a processor, who sends it to a credit card interchange. The interchange makes sure the credit card information is complete, and contacts the card issuer for payment authorization.
  1. Your credit card issuer verifies available credit, and if it is sufficient, sends an authorization code back to the credit card interchange. If credit is not sufficient, the issuer sends a code explaining the declined payment.
  1. The interchange then notifies the merchant that your purchase has been approved (or declined), and you’re given the message that your purchase went through. As far as you’re concerned, your purchase is complete.
  1. The merchant’s computer stores multiple transaction data in batches, and eventually sends the batches out to collect the payments, which are deposited into the merchant’s bank account.

Online Credit Card Fees

Each step of your online credit card transactions is associated with fees. A small portion of the purchase price is deducted at each step in order to provide the electronic service and convenience of online transactions. For every $100 purchase, about $3 is used to cover fees.