How Does The Online Payment Process Work?

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Online payments have become the need of the hour and indispensable to the online shopping process owing to their ease of use. The decreasing dependence on cash payments has made it even more critical for businesses to embrace online payments to stay relevant with the latest payment trends. Over 86% of Indians have entirely accepted online payment methods as e-commerce charges ahead of traditional brick and mortar. This becomes far more relevant in the post-pandemic period, with the number of online shoppers going from 100 million in 2018 to more than 180 million in 2021. Any business entity hoping to gain from this paradigm shift must necessarily adopt online payment processes.

However, one of the biggest challenges for online businesses is how do I accept online payments? Where do the customers opt for card payments? How does the customer pay using their mobile?

To understand the online payments process better, let’s first learn what online payments are. Simply put, online payment is a medium by which a merchant can accept payments from their customers digitally with no physical interaction. It is here that payment gateways in India come in, to bridge the gap between merchants and their customers.

To understand how the online payments process works, let’s first look at the various stakeholders involved in the online payments process.

Stakeholders involved in online payments processes

Customer: In any business transaction, the customer comes first. They are the fundamental stakeholders in the online payments process, with whom the process begins and ends.

Merchant: The merchant or the seller is the primary entity that benefits from the process of online payment. They are the host of the merchandise and the payment gateway and the recipients of the online payments.

Payment Gateway: The payment gateway is another crucial entity involved in the transaction. Payment gateways in India ensure that online payment is completed securely and seamlessly. The payment gateway facilitates transferring funds from the customer’s account to the merchant’s account.

Banks: Then, there are the corresponding banks representing the customer and the merchant. They are secondary stakeholders in the process. The online payment process involves an issuing bank or the bank that the customer uses to make the payment and the acquiring bank or the merchant’s bank to receive the payment.

Once the various stakeholders are identified, the core of online payment processes can be understood with clarity.

Online payments process

Here are a few simple steps to understand how the process of online payment transpires:

  1. The customer chooses their desired product from the online catalogue displayed on the merchant website, online store, or app.

When the customer has made their mind about making the purchase, they add the product to the cart, go to the cart, submit information like delivery address, contact number, name, etc., and are prompted to make the payment.

  1. When they are directed to the payments page, they first choose the payment mode they prefer.

Payment gateways in India like Zaakpay offer a suite of payment modes like Credit/Debit Cards, eWallets, Net Banking, Bank Transfer, UPI, Pay Later, and even EMI options to choose from.

  1. The customer then enters their payment details corresponding to the payment mode they have opted for. They now will put details like card numbers, expiry date, CVV for card payments, UPI IDs for UPI transactions, or links to their eWallet account.
  1. This is where the payment gateway swings into full action.

The payment gateway first encrypts the payment information for customer security using SSL encryption and forwards the encrypted data to the payment processor.

  1. The payment processor directs it to the next stakeholder. It could be a card network (Mastercard, Visa) in card transactions, UPI aggregator, or the eWallet payment platform.  
  1. The transaction is then verified with the issuing bank. This step eliminates the age-old problem of fraudulent transactions as the issuing bank verifies all online payment transactions before authorization.
  1. After verification, the bank returns with the information that the account has (or does not have) sufficient balance or that the card information entered is correct (or incorrect). This is also the step where the customer is notified by the bank directly of the attempted transaction. This is mainly done via the established form of communication between the issuing bank and the customer via messages and/or emails.
  1. The information is once again routed to the payment processor, where the verified information is processed. The payment processor requests permission from the issuing bank to conduct the transaction, and the money finally changes hands. This is also where the merchant’s bank or the acquiring bank notifies the seller of the amount being successfully credited into their account.

Although this seems like a long process, in theory, the entire transaction takes only a few seconds to be completed. All this happens in the backend facilitated by an API-powered payment gateway that enables the transaction.

More importantly, payment gateways in India ensure the successful completion of thousands of such transactions simultaneously for every single business entity that it provides its services to.

Another fascinating fact is that in the entirety of this transaction, not once does the payment gateway directly interact with the consumer’s money. That responsibility rests solely with the bank.


Due to the increasing number of customers moving online, it has become imperative for businesses to keep pace with modern methods of payments and adopt digital payments. This need is further enhanced by the simple efficiency and fast payment processing introduced by online payment gateways.

While choosing a payment gateway for themselves, business entities must study how the online payment processes work to understand where the costs can be minimized and which payment gateway in India best suits their requirements.

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