You're on your Instagram, scrolling through reels, and you come across a handy home decor item that seems too good to pass up. You check out the brand's profile, visit their website, and read the details. The seller is based out of a country in Europe. The satisfying discount on overseas shipping teased you enough, and you decided to go ahead with the purchase. You enter your card details, make the payment, and within a couple of seconds, the transaction amount is debited from your bank account, and you get a notification on your phone. Within a few days, to your delight, you receive your item.

Did you ever think about how the amount was transferred from your bank account to another account, halfway around the world? How do the systems in place seamlessly facilitate such transactions? How are international online payments processed?

An ultimate guide to payment processing in 2024: What it is and how it works

How does payment processing work?

Payments are largely processed through cash, cards, checks, ACH, and digital wallets. When dealing with credit or debit cards, payment processing involves the customer, or the cardholder, the seller or the merchant, the issuing bank, the acquiring bank, the card network, the payment gateway, and the payment processor. These key terms are explained below.

• Cardholder: The customer or the cardholder is the buyer.

• Issuing bank: The cardholder's bank that issues the card and holds the cardholder's funds.

• Merchant: The seller who uses an online store or a website for their products.

• Payment gateway: A gateway that interfaces between the merchant's website and the payment processor, usually involved in transferring card information.

• Payment processor: A software that processes the requests sent in by the payment gateway, involved in authentication and fund transfer between the merchant and the issuing bank.

• Acquiring bank: An acquiring bank receives incoming payments and operates merchant accounts designed to accept card payments.

• Card networks: Secure encrypted network systems designed to handle the transfer of cardholder information and funds between banks.

Steps involved in payment processing

Payment processing involves a series of steps associated with the transfer of funds between the issuing bank and the acquiring bank. Once you've decided to go ahead with the order, you check out from the page. You, as the cardholder, need to initiate the request, after which it is processed and then authenticated. After authentication, the request is authorized, and there are several exchanges of messages between the various networks, after which the funds are transferred and the transaction is settled.

Conclusion

In today's interconnected world, the journey of an international online payment is underpinned by a sophisticated network of financial systems. At the heart of this process are the key players: the cardholder, the merchant, the issuing bank, the acquiring bank, and the intricate infrastructure of card networks and payment gateways. Each step—from the initial transaction initiation to authentication, authorization, and finally settlement—involves robust mechanisms to ensure security, reliability, and efficiency.

As society continues to embrace global commerce and digital transactions, understanding the intricacies of international payment processing not only enhances consumer confidence but also underscores the vital role of technology in shaping modern commerce. With secure protocols and reliable systems in place, the world of online global transactions opens up endless possibilities, bridging distances and connecting markets like never before.