Understanding Online Payment Services -Complete Payment guide

Small organizations collect payments mainly through cash or cheque. While this might be working for you at the moment, adding online payments provides a number of advantages to you and your supporters. People are increasingly comfortable paying online. As online payments are faster than manual payments, it made the whole process very easy – from submitting an online payment to updating your bank account.

Thus, the end result is improved cash flow for the organization & almost immediate confirmation of transactions.Automated payments also save you the trouble of depositing the cheque and recording the payment manually.

Of course, anything of value comes with a cost, thus your payment provider will charge you a fee per transaction, and some charge other fees as well –

such as setup fees or monthly fees. But if online payment helps you grow your membership or your fundraising, they’ll be taking a slice out of your much larger pie.

Understanding online payment terminology
  • There are several terms that are used almost interchangeably when describing online payments:
  • payment gateway
  • payment processor
  • payment provider
  • payment service or payment system
  • Merchant account
Payment gateway

A payment gateway is a service that receives the online payment request from your website and directs it to the payment processor.

Payment processor

A payment processor is a service that validates the purchaser’s credit card details and checks if they have sufficient funds in their account to cover the payment. If the customer has sufficient funds, the transaction is authorized, and the funds are transferred from the customer’s account. The status of the transaction is transmitted back to the payment gateway which then sends a status message to your website.

Payment provider

A payment provider (or payment service provider) is the company that operates the payment gateway or payment processor services.

Payment service or payment system

Where a payment provider offers multiple types of payment gateways – with different features and pricing – each type is referred to as a payment service or payment system. For example, PayPal is a payment service provider that offers a number of payment services or payment systems such as PayPal Payflow Pro and PayPal Express Checkout.

Merchant account

When an online transaction is successfully completed, the funds are transferred from the purchaser’s account to your merchant account, a special kind of bank account used exclusively to hold funds received from credit and debit card transactions. To accept online payments, you usually need to set up a merchant account with your payment provider. Funds accumulating in your merchant account are transferred to your organization’s bank account on a regular basis.

Anatomy of an online transaction: the process

To get started with online payments, you typically need:

  • A merchant account – though some payment systems (such as PayPal) do not require a merchant account or can provide you with oneAn account with a payment service provider
  • A web page with a button (e.g. Join, Donate, Buy) that initiates the transaction process – you can use code provided by your service provider or specialized shopping cart software


Once you’ve set up your web page and connected it to an online payment service, visitors to your site will be able to pay online for products or services. The online payment process begins when the visitor clicks the button to pay online for membership fees or an event registration or purchase something from your online store.

On the online payment form that appears, the visitor enters their credit card information then submits the transaction request. Depending on your online payment service provider, the form may appear on your website, or your purchaser may be redirected to a form on your service provider’s website.


The transaction request, along with the credit card information entered by the purchaser, is securely transmitted to the payment gateway operated by your payment service provider. The information is encrypted so that no one – including you – can view the purchaser’s personal and financial information.

Your payment service provider will use a secure payment processing service – either their own or one provided by another company – to verify the purchaser’s credit card details and confirm whether the purchaser has sufficient funds to complete the transaction.



If the purchaser’s credentials are valid and there are sufficient funds to complete the transaction, your payment service provider will initiate a transfer of funds from the purchaser’s bank account to the merchant account associated with your website, and notify your website that the transaction has been approved. Depending on how your website is set up, that information can be used to automatically update records on your site (e.g., update your membership management or event registration database).


If the transaction is declined for any reason – invalid credentials or insufficient funds – no funds will be transferred, but status information will still be sent to your website.


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