E-commerce streamlines how a business interacts with its customer base; however, every time a consumer buys a product online, an e-commerce transaction takes place. While this occurs in an instant for the customer, there is an exchange of information from one party to another that requires steps to authorize payment, execute payment and finalize payment. In order to run a successful online store, new merchants must understand what an e-commerce transaction is, how to choose proper credit card processing services, and the compliance regulations that protect the merchant and the merchant’s customers.
What Is Ecommerce Transaction?
An e-commerce transaction is defined as any product or service purchased online through an online payment method[1]. This includes credit card payments, debit card payments, ACH transfers, mobile wallets and other digital payment forms. Similar to in-person transactions, online e-commerce payments require payment for goods or services rendered; however, card-not-present transactions need secure verification in an online environment. Digital ecommerce transactions present new risks and rewards for merchants to take advantage of, if they work with trusted ecommerce credit card processing services. The credit card processor acts as the intermediary between the access point of the transaction and the merchant’s bank. It creates the connection between both the customer’s bank and the merchant bank, facilitating the transaction from the credit card point of sale to completion of payment.
Step One: Customer Checkout
The transaction is initiated when a customer puts an item in their cart and checks out. At this moment, they will enter payment information, whether a card number or digital wallet identification. This is where the e-commerce software utilized by the merchant connects to the payment gateway. The payment gateway accepts the transfer of charge information and transmits it to the processor. The payment gateway must be well-known, reputable and secure, as it protects the sensitive information of the customer with encryption[2]. New merchants must have a payment gateway compatible with their payment processing store, and if they sell internationally, they should ensure their payment gateway allows for international cards as well.
Step Two: Payment Authorization
Once the information is entered, the payment processor sends the data to the acquiring bank and either the Visa, MasterCard or American Express credit card network. The credit card network reaches out to the customer’s issuing bank to ascertain whether the customer has enough credit or funds. At this point, the issuing bank either authorizes or declines the transaction[3]. Merchants want to partner with a high-quality credit card processing service so they experience fewer phantom declines on their end, which means happier customers and retained revenue.
Step Three: Settlement and Funding
After authorization comes settlement. This is when the issuing bank transfers the funds to the acquiring bank, which deposits funds into the merchant bank account. Customers will see this in their transaction logs almost instantaneously; merchants should expect to wait one to three business days to see the money, depending on the processing service used—the longer the deposit period, the more critical it is to select the top credit card processing business for a partner[4]. The faster the settlement, the better for small businesses that rely on cash flow to survive.
Step Four: Security and Compliance Measures
Every e-commerce transaction requires payment card industry compliance to protect sensitive data. Merchants are responsible for PCI DSS; this includes encryption of transactions, tokenization and constant monitoring of payment portals. Merchants in high-risk industries have even more compliance requirements, like different fraud detection thresholds. A quality credit card processing solution offers security features that assist merchants in complying with PCI DSS while decreasing chargeback incidents and fraudulent transactions. New merchants should pay attention to compliance from day one to avoid fines and damage to their reputation later.
Step Five: What Goes On After the Transaction?
The e-commerce transaction process carries on beyond when a merchant gets paid. Merchants must also be equipped to handle disputes, problems, chargebacks and refunds. The best credit card processing services feature chargeback resolution services that determine whether a charge was legitimate, helping small businesses protect their revenues earned through hard work while addressing problems on the fast track. In addition, merchants will want to assess transaction data for sales and inventory management trends. For rookie merchants, this is as critical of information as the transaction, giving them the ability to stabilize and grow moving forward.
FAQs
Q: What does it mean to complete an e-commerce transaction?
A: To complete an e-commerce transaction means successfully processing an online payment using electronic systems like credit cards/debit cards or digital payments.
Q: Why do e-commerce merchants need credit card processing?
A: E-commerce merchants need credit card processing to ensure secure transactions via authorization and settlements, which then allow merchants to access their funds almost immediately.
Q: How quickly do merchants get paid after an e-commerce transaction?
A: Merchants typically get paid within one to three business days, depending on their provider.
Q: Why is PCI DSS important for e-commerce transactions?
A: PCI DSS compliance is critical with e-commerce transactions because it ensures any business that takes credit cards adheres to security standards to protect customer payment information from fraud and the businesses themselves from penalties[5].
Q: How can merchants reduce declined transactions?
A: Working with the best credit card processing providers can reduce declines by improving authorization accuracy and providing fraud prevention tools.
Sources
- Investopedia. “Ecommerce Definition and How It Works.” Accessed August 2025.
- NerdWallet. “High-Risk Merchant Accounts: What You Need to Know.” Accessed August 2025.
- Visa. “How Authorization, Clearing and Settlement Works.” Accessed August 2025.
- CardFellow. “How Credit Card Processing Works: A Guide for Merchants.” Accessed August 2025.
- PCI Security Standards Council. “PCI DSS Quick Overview.” Accessed August 2025.
