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`Small Business
`Payments
`Payment Processing
`How online payment processing works
`
`PayPal Editorial Staff
`November 5, 2024
`5 mins read
`
`1
`With e-commerce poised to make up nearly a quarter of all global retail sales by 2027,
`many businesses are setting up digital shops to accept payments online and capture more
`sales. But after a customer hits "check out," how does the money get to your company’s
`account?
`
`Whether you’re expanding a brick-and-mortar business to accept payments online or starting a
`new venture from the ground up, it’s important to understand how online payment processing
`
`Business Resource Center
`
`Business Resource Center
`
`Patent Owner Exhibit 2030, Page 1 of 11
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`

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`really works – who's involved, how you get paid, and what processing fees you might incur. That
`way, you’ll be prepared with a suitable plan for you and your business.
`
`In this guide, we’ll cover the basics of payment processors from how they work to their benets
`for websites and e-commerce operations.
`What is online payment processing?
`The reasons businesses should incorporate streamlined online payment processing solutions
`are straightforward: they help to boost customer satisfaction, bolster transaction security, and
`further bottom lines.
`
`But rst, we should explain how online payment processing works. In basic terms, it refers to
`how money moves from your customer to your business. Though this may sound simple, there
`are many moving parts involved in processing credit and debit card payments, whether online,
`via phone sales, or even in person.
`
`You, the business owner or merchant account, are one end of the transaction. Your customer is
`on the other end. A sophisticated array of technology bridges the gap between the two,
`designed to facilitate this exchange efciently and securely.
`
`By understanding the mechanisms of online payment processing software, you can make
`informed decisions that enhance transaction reliability and customer trust, which may ultimately
`lead to business growth.
`The business
`
`The main moving part of online payment processing is the merchant, who is considered you or
`your business. However, to accept credit and debit card payments from online customers, you
`will likely need to partner with one of the many available merchant account providers, including
`our PayPal merchant account.
`
`This merchant account (sometimes called an acquirer) accepts payments on your behalf and
`deposits them into a business merchant account they provide. For instance, you can accept
`online payments with PayPal.
`The online payment processor
`
`Payment processors (or merchant account services) handle all the heavy lifting in online
`payment processing. This involves everything from moving the transaction through the
`processing network to sending you a billing statement, and then working with your bank to
`ensure you get paid. In other words, it includes everything it takes to process online payments.
`
`Often, your merchant bank is also your online payment processor, which helps simplify things.
`For example, with PayPal, funds are settled directly into your PayPal account, where they
`become available for immediate use – no bank transfers and waiting periods needed.
`
`Patent Owner Exhibit 2030, Page 2 of 11
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`

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`The payment gateway
`
`One of the technologies involved in online payment processing that enable you and your
`customer to transact is the payment gateway. For us, it’s called the PayPal payment gateway.
`This is software that links your site's shopping cart to the processing network.
`
`The payment gateway plays a crucial role in the checkout process. It not only securely transmits
`the customer's payment information from your website to your payment network for processing
`but also performs essential security checks to prevent fraud, including verifying digital
`signatures and encrypting sensitive data like credit card numbers.
`
`2
`Given that more than 70% of online shopping carts are abandoned on average, choosing a
`payment gateway that provides a frictionless, secure payment process can be a game-changer
`for driving conversions and repeat business.
`The customer
`
`Traditionally, for your customers to pay for your goods and services, they would need a credit or
`debit card. The bank that then approves the card (and lends them the cash to pay you) is called
`the issuing bank.
`Online payment processing benets
`Online payment systems offer convenient, quick, and secure transactions, leading to improved
`customer experiences, efcient record-keeping, and helpful integration capabilities. Adopting
`these systems can optimize payment processes and contribute to the overall growth and
`success of a business in the digital age.
`Convenience
`
`Online card processing systems have long provided a convenient way for customers to make
`purchases from anywhere, anytime – eliminating the need for physical store visits or carrying
`cash.
`
`While this convenience was groundbreaking, the digital shopping landscape now demands
`even greater exibility and innovation in payment solutions. Beyond traditional credit and debit
`cards, modern consumers expect options like digital wallets, like PayPal, Google Pay or Apple
`Pay, along with newer methods such as Venmo and buy now, pay later options.
`
`With 13% of customers abandoning their shopping carts because of insufcient payment
`2
`options, these alternatives provide much-needed convenience.
`Expanded customer base
`
`By accepting online payments, businesses can reach a broader customer base beyond their
`local area. Online payment processing for small businesses enables those companies to cater
`to customers from different regions and even international markets.
`
`Patent Owner Exhibit 2030, Page 3 of 11
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`

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`Quick transactions
`
`Online payments are typically processed swiftly, allowing for faster transaction completion
`compared to traditional payment methods.
`Improved security
`
`Online payment systems often employ advanced security measures to help protect customer
`information.
`Enhanced customer experience
`
`Online payment systems offer a seamless and user-friendly interface for customers to complete
`transactions with features like saved payment information, one-click purchases, and automated
`recurring billing options.
`Integration with other business systems
`
`Many online payment processing systems integrate with other business software and systems,
`such as e-commerce platforms, inventory management, and customer relationship
`management (CRM) systems.
`
`For example, linking payment processing with an e-commerce platform can automatically
`update inventory levels as sales occur, while CRM integration ensures customer data is
`continually refreshed with each transaction.
`
`These integrations not only save time by reducing manual data entry but also provide valuable
`insights into customer behaviors and preferences, aiding in more informed decision-making.
`
`How does online payment processing work?
`As a business owner, it’s helpful to understand exactly what it looks like to process online
`payments. Or, in other words, how money moves from your customer to your business.
`
`There are two stages to online payment processing: authorization (approving the sale) and
`settlement (getting the money in your account).
`Card authorization
`
`Patent Owner Exhibit 2030, Page 4 of 11
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`

`

`When it comes to how credit card processing works, the authorization process goes roughly like
`this:
`
`Your customer buys an item on your site with a credit or debit card.
`
`That information goes through the
`private and sends it to the payment processor.
`
`, which encrypts the data to keep it
`
`The payment processor sends a request to the customer’s issuing bank to check to see if
`they have enough credit to pay for the item.
`
`The issuer responds with a yes (an approval) or a no (a denial).
`
`The payment processor sends the answer back to you that the sale was approved and tells
`your merchant bank to credit your account.
`
`The full range of these steps happens quickly. In fact, all of the above takes place within one to
`two seconds, in most cases.
`Settlement
`
`The second piece of the online payment system process (where you get paid) is the settlement:
`
`The card issuer sends the funds to your merchant bank, which deposits the money into
`your account.
`
`The funds are available.
`
`Although the settlement process can sometimes take a few days, certain banks might allow you
`to access your funds even before they are ofcially transferred. They also may keep a portion in
`your account that you can’t touch – just in case the customer returns the item later (called a
`reserve in payments).
`
`Want funds sooner to better manage business expenses and improve cash ow? PayPal's
`payment processing can help. Once funds settle into a merchant’s PayPal account, they are
`available for immediate use – there's no need to wait for a bank transfer. Check out our step-by-
`step guide to PayPal payment processing.
`How to set up online payment processing with a third-party
`system?
`We know you may have questions swirling in your head: What do I look for in a payment
`processor? How do I choose a payment gateway a payment gateway? How can I set this all up
`without being overwhelmed?
`
`Here’s a general breakdown of how to set up online payments for your business:
`
` Research online payment processing companies and select a
`reputable one that suits your business needs, considering factors such as transaction
`
`Patent Owner Exhibit 2030, Page 5 of 11
`
`1.
`2.
`payment gateway
`3.
`4.
`5.
`1.
`2.
`Find the right partner.
`

`

`fees, security features, integration options, and customer support. Remember, the
`cheapest online payment processing service is not necessarily the best match for your
`business.
`
` Sign up for a merchant account with the
`chosen payment processor. Provide the required business and banking information.
`
`Determine how you want to integrate online
`payments into your website. Some potential options include using an e-commerce
`platform with built-in payment integration or integrating a payment gateway into your
`custom website.
`
`website and payment processing setup must comply with
`cardholder data.
`
` Your
` to protect
`
` Perform test transactions to ensure the payment
`processing system works correctly. Experiment with different scenarios, such as
`successful payments, declined transactions, and refunds, before launching the system to
`your customers.
`
`Once set up, it’s important to continuously monitor your online payment processing system,
`review transaction reports, and stay updated on any changes or enhancements offered by your
`payment processor.
`How to set up an online payment system without a third-
`party system?
`Wondering how to set up an online payment form without a third-party processor? It can be a
`complex task. Here are a few steps you can take:
`
`Explore different payment service
`providers (PSPs) and select one that aligns with your business.
`
` Access the developer resources provided by the PSP, which
`can help you integrate their payment solution into your website or application.
`
` Implement SSL encryption on your website to ensure secure
`communication between your customers and the payment service provider during
`transactions. Obtain an SSL certicate and congure it on your website.
`
`Choose the integration method, such as API integration, hosted
`payment pages, or shopping cart plugins. Follow the PSP's documentation and guidelines
`for seamless integration.
`
`Ensure your integration adheres to relevant security standards and
`compliance regulations, such as PCI DSS.
`
`Patent Owner Exhibit 2030, Page 6 of 11
`
`Create an account with a payment processor.
`Integrate the steps into your operation.
`Ensure compliance with Payment Card Industry Data Security Standard (PCI DSS).
`PCI DSS guidelines
`Get started with test transactions.
`Research payment service providers and sign up.
`Explore developer resources.
`Establish a secure website.
`Integration options.
`Maintain compliance.
`

`

`Once you have successfully tested the integration, switch to the live or production
`environment provided by the PSP. Update your website or application to enable real
`transactions and start accepting payments from customers.
`How to add a payment method to a website checklist
`Now you’re ready to create a website with payment options or add payment to your existing
`website. Once you’ve selected an online payment processing company, set up an account, and
`chosen the integration methods, you can:
`
`Add payment buttons or forms to your website.
`
`Implement security measures.
`
`Perform test transactions.
`
`Start accepting payments from customers.
`Payment processing pricing and fees
`We’ve learned about how payments come in once they’re processed, but what about the other
`side of the coin? What will it cost? As you may have guessed, everyone who touches the
`transaction wants to get paid, including the issuing bank, the credit card association (Visa,
`MasterCard, etc.), the merchant bank, and the payment processor.
`
`At its most basic, every time you process a sales transaction, you pay four payment processing
`fees:
`
`The issuer gets paid by taking a percentage of each
`sale, which is called the interchange. This fee varies depending on various factors, such as
`industry, sale amount, and type of card used.
`
`The credit card association (Visa, MasterCard,
`etc.) also charges a fee, also known as an assessment.
`
`Your merchant bank takes a cut by
`charging you a percentage fee. The amount here also varies by industry, number of sales,
`monthly processing volume, etc.
`
` The payment processor (who might also
`be your merchant bank) makes money by charging an authorization fee every time you
`process a transaction (whether it’s a sale, a decline, or a return). Plus, it can charge fees for
`setup, monthly usage, and even account cancellation.
`
`Usually, the rst three fees (the percentages) are all added together and quoted as a single rate,
`while the transaction fee is quoted separately (e.g., 2.9% + $0.30).
`
`Most pricing structures generally fall into one of three categories:
`
`Patent Owner Exhibit 2030, Page 7 of 11
`
`Go live.
`A percent of the transaction amount.
`Another percent of the transaction amount.
`Yet another percent of the transaction amount.
`A dollar amount for every transaction processed.
`

`

`You pay a xed percentage for all transaction volume, no matter what the
`actual costs are. All the above fees are included in this single rate. For example, you are
`charged a bundled rate of 2.9% of the transaction amount + $0.30 per transaction. On a
`$100 sale, the fee you pay is $3.20.
`
` Your merchant service charges you a xed fee on top of the
`interchange. For example, 2.0% + $0.10 on top of a 1.8% interchange fee. On a $100 sale,
`the fee is $3.90. Learn more about
`
` The processor takes many different interchange rates and lumps them into
`three buckets (or pricing tiers): qualied, mid-qualied, and nonqualied. However,
`because the processor denes the buckets any way it wants, this method can be
`expensive. As an example, the fees you pay on a $100 sale could range from $2.50 to
`$3.50, depending on how the transaction has been classied.
`
`For more information, visit PayPal pricing.
`
`Ready to start accepting and processing payments quickly and easily? Explore PayPal
`Complete Payments and learn more about new innovations revolutionizing commerce.
`
`Patent Owner Exhibit 2030, Page 8 of 11
`
`Flat-rate pricing.
`Interchange plus pricing.
`IC++ pricing.
`Tiered pricing.
`

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`Patent Owner Exhibit 2030, Page 9 of 11
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`Patent Owner Exhibit 2030, Page 10 of 11
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`The content of this article is provided for informational purposes only. You should always obtain
`independent business, tax, nancial, and legal advice before making any business decision.
` Statista. (2024, Feb). E-commerce as percentage of total retail sales worldwide from 2021 to 2027.
` Baymard Institute. (2023, Jul). 49 Cart Abandonment Rate Statistics 2024.
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`Patent Owner Exhibit 2030, Page 11 of 11
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