How Online Card Payments Work

How Online Card Payments Work

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.

*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, it fails.

What is Payment Authorization?

Once the payment has been authenticated, it is sent to the Interchange network, which then 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 user’s account. 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 – either the payment fails or the money is debited from user’s account. In the second scenario, if the money is debited but isn’t credited to the merchant (sale considered invalid), 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 a high level, a buyer is redirected from Instamojo, via our banking partners to the buyer’s bank. 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.

If the money is not settled to us, it is reversed to the buyer’s account in 5-7 working days. 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. Buyers are directly taken to the payment mode selection screen, from where they can attempt the payment again.

In case the money is deducted twice from the buyer’s account, our system will automatically refund the second (and subsequent) payments to the seller.

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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