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Online Payment Companies

Companies that handle online or internet-based methods of payment

What are Online Payment Companies?

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 PayPal, Alipay, WeChat Pay, Paytm, Google Pay, and Apple Pay.

 

Online Payment Companies

 

Quick 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. It 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

 

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 card or a debit card.
  • The merchant account provider or acquirer is the bank or financial institution that opens an account with 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. It 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 account.

 

Advantages of Using Online Payment Companies

 

1. Wider client base

Online payment companies help widen the merchant’s client base and make the customer base a global one.

 

2. More effective and efficient transactions

Transactions are more effective and efficient. It 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. It 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

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

  • Click and Mortar
  • Libra Cryptocurrency
  • Netspend
  • Venmo

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