Online payments are widely accepted across the globe. Hence, it's now necessary for businesses to have the right infrastructure to run them.
Every time a person taps to pay online, a complex process begins behind the scenes. Payment processors and fraud detection systems exchange information within seconds. Together, they decide whether to decline a payment or let it reach its target.
This guide explains how online payment processing works generally. It also takes a closer look at how it works for SaaS and subscription businesses, as well as marketplaces. By the end of this article, readers will have a clear insight into how online payment processing works and where it differs in different business models.
Before diving into payment setups suitable for specific business models, it is essential to grasp the basics. Understand how funds move from a buyer to your account and the underlying costs. When a merchant knows how these core building blocks work, dealing with the nuances of payment infrastructure becomes much easier.
Let's take the example of card payments here. Every transaction requires a coordinated exchange between four primary participants:
Cardholder: The customer that makes the purchase.
Merchant: The business that receives payment.
Acquirer: The merchant's bank that processes transactions.
Issuing Bank: The bank that extends credit or holds a deposit account.
Businesses must connect these four core players. This connection is achieved when their online payment processing systems combine three components:
1. Payment Gateway: This is software that captures and encrypts raw payment data at checkout. Gateways routinely use tokenisation. This involves replacing sensitive card numbers with secure identifiers, keeping confidential data off your servers and helping maintain compliance with PCI DSS (Payment Card Industry Data Security Standard).
2. Payment Processor: At this point, the encrypted transaction data routes between the business website/app, the acquiring bank, and the card networks.
3. Acquirer: This is the financial institution that has direct connections with card networks. It helps in settling the funds.
In the past, merchants had to manage separate contracts for banks and payment gateways. Today, unified payment service providers like Antom bundle these into a single integration. They build direct links to card networks to cut out extra middle steps.
The image below illustrates how a payment travels from the start until it reaches its final destination:
Card networks and issuing banks charge fees for each transaction. Also known as network costs, they break down into two main categories:
This is the largest portion of transaction fees. It's paid directly to the issuing bank. The fee compensates the bank for taking on the financial risk of extending credit or offering deposit accounts. During all this, the bank is also providing customer service and technical support to the merchants.
Scheme fees (or assessment fees) go directly to the card networks. This helps them maintain their global infrastructure.
It's quite clear that network fees aren't flat. They depend on several transaction variables:
|
Factor |
Impact on Network Fees |
|
Card type |
Premium cards usually have higher fees than standard cards or debit cards. |
|
Transaction channel |
Online payments often cost more due to higher fraud risks. |
|
Location |
Cross-border transactions usually need added fees and evaluation. |
The European Central Bank's SPACE 2024 study found that traditional cards are the primary engine for e-commerce. They make up 48% of online transactions (down slightly from 51% in 2022). Digital wallets and mobile apps account for another 29% (up from 26%). Many of these wallets are simply digital wrappers around stored credit or debit cards.
Successful merchants need to build a payment experience that is secure and accessible across markets. The three areas that matter the most in this regard are:
A smooth payment experience can leave a good impression on customers. A few tips to make it happen are:
· Long or complicated forms often drive customers away. Mobile-friendly designs and auto-fill options are often appreciated. Also, minimising the number of required fields can further reduce friction.
· Strong fraud protection prevents frequent chargebacks. However, overly strict rules can push people away. Use smart fraud detection like Antom Shield to protect data from malicious parties.
· Small details (like accurate billing information and security checks) allow the banks to approve more transactions.
Customers around the world have different payment preferences. Among these, cards are the most popular. Visa and Mastercard were accepted by 97% of UK online stores in 2023.
Besides this, people also use local options like digital wallets and buy now, pay later (BNPL) services. Merchants who support multiple payment methods can reach more people and reduce checkout friction.
Selling globally means dealing with different tax rules across regions. Automated tax solutions allow businesses to calculate the right rates. They can apply them at checkout and fulfil reporting requirements. As a result, compliance risks go down, and merchants can focus on growth.
A strong payment strategy combines convenience with security and flexibility. When these elements work together, businesses can turn visitors into long-term partners.
Software-as-a-Service (SaaS) is not like one-time e-commerce payments. It relies on recurring billing. And long-term business relationships require proactive management of recurring payments.
Meanwhile, subscription billing looks at the broader picture and works on these areas.
· It supports multiple billing models. These may include flat-rate, seat-based, usage-based, tiered, and hybrid pricing plans.
· It automatically adjusts invoices for upgrades, downgrades, and cancellations that happen in a billing cycle.
· It reduces revenue loss from failed payments. This could be done with smart retries or self-service billing portals.
Note that choosing the right approach depends on software complexity and the growth stage of a business:
|
Capability |
Basic Payment Gateway |
Subscription Management System |
|
Billing Frequency |
Handles simple fixed recurring schedules (e.g., monthly/yearly). |
Supports complex usage-based, metered, and hybrid tier models. |
|
Failed Payment Handling |
Basic pass/fail notifications. |
Automated Smart Retries, dunning workflows, and card updates. |
|
Plan Changes |
Requires custom code to recalculate charges for mid-cycle changes. |
Automatically calculates prorated credits and charges upon upgrades/downgrades. |
|
Tax and Invoicing |
Manual invoice creation and basic tax additions. |
Automated global tax calculation (VAT/GST) and localised invoicing. |
For SaaS merchants managing complex recurring billing across markets, a dedicated subscription payment solution can be the right option. It can automate core tasks (smart retries, dunning workflows, plan changes, and tax management). Platforms like Antom allow businesses to streamline these subscription operations with built-in capabilities designed for scalable recurring payments.
After 2020, e-commerce saw a huge boom as activity surged by 25.7%. Today, software platforms and multi-vendor marketplaces handle some of the most complex payment requirements. Because these systems accept funds from buyers and pay them out to third-party sellers, they manage unique operational demands.
Providing integrated payments differentiates a platform. Sellers can launch quickly without applying for standalone merchant accounts.
Moreover, platforms that want to offer built-in payment features without becoming a fully regulated Payment Facilitator (PayFac) must focus on two critical areas:
Verifying sellers' identities is a crucial first step for any marketplace launch. The platform can adopt a phased approach, which will follow these steps:
· Collecting primary information (name, email, address) during sign-up.
· Using auto-fill information to speed up onboarding.
· Getting payment information (like tax IDs or SSNs) only when sellers reach a specific payout threshold.
Platforms must comply with financial regulations when moving funds from buyers to sellers.
In the UK, this means following the UK Payment Services Regulations (PSRs) 2017 and Electronic Money Regulations (EMRs) 2011. Basically, the entire system must support money flows for every business model:
|
Money Flow |
Description |
Common Use Case |
|
One-to-one |
Single buyer payment routed directly to a single recipient, minus a platform fee |
Booking platforms |
|
One-to-many |
A single checkout cart split among multiple independent sellers |
Multi-vendor retail marketplaces |
|
Holding funds |
Funds held in reserve/escrow before payout upon fulfilment |
Ticketing platforms, service bookings |
|
Account debits |
Reversing transactions or pulling monthly platform fees directly from seller accounts |
E-commerce platform maintenance fees |
Mastering these core payment mechanisms will lead to friction-free growth. And when you're ready to go truly global, consider Antom. It simplifies international expansion by connecting your business to over 300 local and global payment methods across 200+ markets. All of this can be achieved through a single integration.
Payments have always been an engine driving business growth. As business models become more complex, basic payment processing is no longer enough. The future belongs to businesses that can complete online payment processing without any friction.
This makes investing in the best online payment processing setup not optional, but necessary. When all the cards are played right, even a small business can reach surprising milestones just because it has a flawless payment processing structure in place.
So don't wait until change catches up with you. Take action today and stay ready for what comes next!