How Online Card Payments Work

Online card payments
(Last Updated On: July 6, 2021)

Online card payment has many benefits including convenience, easy tracking and security. When merchants use a payment gateway, they can accept all major credit card brands on their website, mobile device or retail store.

If you are an online business that collects payments via Debit or Credit Cards online, here is everything you need to know about how online card payments work.

how online card payments work
*IC = Interchange Networks are payment processors like VISA, MasterCard and, AMEX.

Sometimes, the flow is disrupted and the payment fails.

There are several reasons why payments fail but they can broadly be categorized under two problems:

  1. Payment Authentication failure
  2. Payment Authorization failure

While both these terms are often used interchangeably, they are two completely different things.

What is Payment Authentication?

Online payments go through several checks before they can be processed. This is to help prevent fraud and chargebacks.

While making a payment, the customer has to produce identification parameters that verify the customer alone is making the payment.

Identification parameters/ authentication factors include three crucial elements:

Knowledge Factors: Something a user knows – PIN number, answers to security questions, etc.

Possession Factors: Something a user has – a credit or debit card, an OTP, etc.

Inherence Factors: Something a user is – human factors like fingerprints, retina scans, etc (biometrics).

For Indian cards, the user has to produce two of the above factors to authenticate a payment. If any of the factors don’t match with the records in the bank’s database, the payment is rejected. Which means, the transaction fails.

What is Payment Authorization?

When your customers are buying something from your online store they enter their credit card numbers during the checkout process. Your e-commerce website sends that credit card information to your payment gateway to authorize the transaction and process the payment. This is Authorization.

Once the payment has been authenticated, it is sent to the Interchange network. Then, it forwards the payment request to the issuing bank/user’s bank for permission to debit the money. Here, the bank conducts multiple checks.

While authorizing a payment, the bank checks:

Once the checks are validated, the payment is authorized and the money is debited from the user’s account. The transaction is now complete and the purchase will show up on the customer’s credit card statement. The merchant is notified about a successful payment and the sale is considered valid. However, the money is paid out according to the settlement cycle.

Authorization Failure

There can be two scenarios. One, the payment fails or two, the money is debited from the user’s account but isn’t credited to the merchant . In the later, the sale is considered invalid and the money is reversed in 5-7 working days.

How We Handle Payment Failures at Instamojo?

While a majority of our payments go through smoothly, there are some situations in which you’ll see a change in the status of the payment.

At higher levels, a buyer is redirected to its bank from Instamojo. This is done via our banking partners. Here, the buyer authenticates the payment and is redirected back to us. The funds are either credited back into the buyer’s account automatically by their bank or settled to us.

The money is reversed to the buyer’s account in 5-7 working days if not settled with us.

Instamojo also has a recon process that captures a failed payment and reverses back the money to the buyer’s account in 24 hours.

Retry Payment Feature

How online payments work

Instamojo also allows your customer to retry the payment in case of payment failure. They will directly be taken to the payment mode selection screen where they can attempt again. 

Selecting payment method

Our system will automatically refund the second (and subsequent) payments. It goes back to the seller’s account if the money is deducted twice from the buyer’s. 

Want to try a new and easy way to collect payments online? Try Instamojo. You can get started in just two minutes with just your phone number and bank account!


  1. Hi,

    Everytime a payment fails, it reflects back to my account/ cc statement after 5-7 days. How can I avail this 24 hour feature ?


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