Online Payment Companies: A Comprehensive Guide

Online payment companies are responsible for handling online or internet-based methods of payment. The online payment systems allow the seller to accept payments and the buyer to send payments over the internet. Examples of online payment companies include PayPalPayPal HoldingsPayPal Holdings, Inc. is one of the largest online payments companies that allow parties to make payments through online funds transfers. The online payment system offers electronic alternatives to traditional payment methods such as money order and checks. PayPal provides a platform for online vendors, auction sites,, Alipay, WeChat Pay, Paytm, Google Pay, and Apple Pay.

Summary

• Online payment companies handle online or internet-based methods of payment. They allow the seller to accept payments and the buyer to send payments over the internet.
• To sell online, a merchant account is needed. This is a special bank account wherein funds from online sales are held before they are transferred to a regular bank account.
• A payment gateway facilitates the smooth processing of online payments by transferring vital financial information from an online payment portal and the acquiring bank.

Online Payment Transactions

The main elements involved in an online payment transaction are:

• The cardholder, payee, or buyer, who purchases a product or avails a service online.
• The merchant or seller is the person, company, or institution that sells the product or provides a service to the payee.
• The issuer is the bank or financial institution that provides the payee with the medium of payment, usually a credit cardCredit CardA credit card is a simple yet no-ordinary card that allows the owner to make purchases without bringing out any amount of cash. Instead, by using a credit or a debit card.
• The merchant account provider or acquirer is the bank or financial institution that opens an account for the merchant. The acquirer authorizes the legitimacy of the payee’s account.
• The payment processor is the online payment company that handles the online payment transaction between the payee and the seller.
• The payment gateway processes the online payment transaction and uses security measures and protocols or encryptions to prevent fraudulent transactions.

Merchant Account

To sell online, a merchant account is needed. This is a special bank account wherein funds from online sales are held before they are transferred to a regular bank account.

With a merchant account, payments can be accepted through different transaction channels such as a website, an e-commerce portal, etc.

Payment Gateway

A payment gateway facilitates the smooth processing of online payments by transferring vital financial information from an online payment portal and the acquiring bank.

• It checks the legitimacy or validity of cards being used for online payments.
• It determines the issuing bank of the payee’s card.
• It encrypts the financial information required that is associated with the payee’s card; and
• It ensures smooth processing of online payments.

Payment Processors

A payment processor is a company that primarily operates to facilitate online financial transactions between two parties. It facilitates transactions by managing payment-related information, like a credit or debit card, from the sender to the receiving party’s bank accountChecking AccountA checking account is a type of deposit account that individuals open at financial institutions for the purpose of withdrawing and depositing money. Also known as a transactional or demand account, a checking account is very liquid. To put it simply, it provides users a quick way of accessing their money..

Advantages of Using Online Payment Companies

1. Wider client base

Online payment companies help widen the merchant’s client base and make the customer baseTypes of CustomersCustomers play a significant role in any business. By better understanding the different types of customers, businesses can be better equipped to develop a global one.

2. More effective and efficient transactions

Transactions are more effective and efficient. This is because transactions are made in seconds, ensuring simplicity and speed.

3. Convenient means of payment

Customers can shop and make online payments anytime from anywhere. It is a very convenient and time-friendly method of payment.

4. Low costs

Making online payments comes with very low transaction costs. It saves time and money for both the seller and the buyer.

5. Secure transactions

One of the primary functions of online payment companies is to ensure effective security measures and anti-fraud tools. This makes online payment transactions reliable and secure.

Disadvantages of Using Online Payment Companies

1. Fraud and payment scams

E-commerce fraud is reportedly growing rapidly. Despite the security measures and protocols instituted by online payment companies, countless cases of online payment frauds and security breaches are reported on a regular basis.

2. Failed transactions from poor network connection

If the internet connection is dodgy or not performing well, it can lead to failed transactions or, sometimes, double payments.

Additional Resources

CFI is the official provider of the Financial Modeling and Valuation Analyst (FMVA)®Become a Certified Financial Modeling & Valuation Analyst (FMVA)®CFI's Financial Modeling and Valuation Analyst (FMVA)® certification will help you gain the confidence you need in your finance career. Enroll today! certification program, designed to transform anyone into a world-class financial analyst.

To keep learning and developing your knowledge of financial analysis, we highly recommend the additional CFI resources below:

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• NetspendNetspendNetspend is an Austin-based company that offers prepaid debit cards, usually Visa or Mastercard, that can be used to make in-store purchases, shop online, and withdraw cash at ATMs. The Federal Deposit Insurance Corporation acts as a guarantor and provides insurance for all Netspend transactions.
• VenmoVenmoVenmo is a peer-to-peer digital payment service that allows people to send and receive money instantly. It started as a payment system through text message, capitalizing on the opportunity to use its platform as a social network where friends and family can connect.