How are online payments made?

SmartCompany /

“I want customers to be able to buy goods from my business over the web. But how do online payment systems work?” EDWIN KULLER has the answers.

“I want customers to be able to buy goods from my business over the web. But how do online payment systems work?”

Edwin Kuller answers: There are three key components to any online payment system.

  1. Shopping cart/online order form.
  2. Payment gateway.
  3. Merchant account payment system.

Shopping cart/online order form

A shopping cart is a tool that facilitates the item selection or “picking” activity. Used in conjunction with an online catalogue tool, where the items for sale are listed, a user selects items from the catalogue and places them in the “cart”.

Most Australian companies will utilise a hosted shopping cart where they pay a monthly hosting fee. With the hosted approach, the digital certificate is provided by the host and is covered in the hosting fee. Companies who host the shopping cart themselves are responsible for the digital certificate, which carries an annual ongoing cost.

In addition to better usability for the user, a well-designed shopping cart helps the company to manage online risk and combat fraud through the information. Also, a user will judge the website by its shopping cart. So be careful, as a poorly designed shopping cart with a “clunky” check-out process can put the user offside and the sale opportunity will be lost.

An online order form is a basic alternative to a shopping cart.

Payment gateway

A payment gateway is required for real-time e-commerce on your website where the user’s credit card is authorised in real time, allowing the user to complete the transaction, and triggering a payment into the your bank account. Usually there is a set-up fee, annual fee, and per transaction charge.

Internet merchant account facility

An internet merchant account is a dedicated account to receive online credit card payments the user establishes with a bank. For real time e-commerce, it works in conjunction with a payment gateway.

Once you have set up the internet merchant account, you need to decide how the payments will be transferred.

If you have opted for real time e-commerce (and have payment gateway), then payment transfer will be handled automatically. With this kind of set-up, the bank will allow usually you to charge in Australian dollars only.

Alternatively, you can use the information gathered from a shopping cart or order form to manually re-key the customer’s credit card number into an EFTPOS facility. Generally, this means charging the customer in Australian dollars, though some EFTPOS terminals will allow the company to charge the customer in other currencies. With this approach the company does not require a payment gateway service because the transaction is not in real time.

Possibly the easiest way to deal with payment transfer is to use a third party hosted solution such as Paypal or Worldpay. The advantage of PayPal and WorldPay is that you can charge your customer in different currencies without having to establish dedicated currency bank accounts.


Edwin Kuller is Austrade’s e-business adviser, providing strategic and operational advice to companies who wish to enhance their e-business effectiveness in export markets. He works closely with Austrade industry specialists to promote e-business as an enabler to generating international business benefit.



SmartCompany is the leading online publication in Australia for free news, information and resources catering to Australia’s entrepreneurs, small and medium business owners and business managers.

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