Understanding Online Payment Services: The Complete Guide

About This Guide

This article is a free resource developed by Wild Apricot.

You work for a small non-profit or membership-based organization that offers paid memberships, organizes ticketed events, or solicits donations. If you've been handling the payments manually up until now, maybe it's time to start accepting online payments on your website. In a series of articles, we'll help you navigate all of the different options, and decode the jargon.

Online Payment Services

Why bother with online payment services?

If you're like many small organizations, you collect payments mainly through cash or checks. While this might be working for you at the moment, adding online payments provides a number of advantages to you and your supporters.

Meet expectations

People are increasingly comfortable paying online. When members or supporters are ready to sign up, register for an event, or make a donation, they want to do it quickly and easily. In fact, websites that don’t support online payment can be seen as being out of step.

Speed up the process

Online payments are faster than manual payments, since you don’t have to wait for the check to arrive or for it to clear. The whole process – from submitting an online payment to updating your bank account – can take a matter of seconds. The end result is improved cash flow for your organization, and almost immediate confirmation of transactions. Prospective members won’t have to wait to join your organization, and participants will know right away whether they have successfully registered for an event.

In addition, the online payment service lets you know right away if the person making the online payment has sufficient funds to cover the transaction –  rather than finding out a week later when the check bounces.

Save you the trouble

Automated payments also save you the trouble of depositing the check and recording the payment manually. Once you set up online payments for your website, they are automatically processed. You don’t handle or store any credit card information. Any updates to member records are handled automatically.

But at a price

Of course, anything of value comes with a cost, and in this case, your payment provider will charge you a fee per transaction, and some charge other fees as well – such as setup fees or monthly fees. But if online payment helps you grow your membership or your fundraising, they’ll be taking a slice out of your much larger pie, and everyone’s a winner.

We’ll explore the costs later, but now, before you start thinking about selecting a particular payment provider, it’s important to understand some online payment terminology, including payment provider.

Understanding online payment terminology

There are several terms that are used almost interchangeably when describing online payments:

  • payment gateway
  • payment processor
  • payment provider
  • payment service or payment system
  • merchant account

Though they are distinct, with subtle differences, they all refer to a company, service, or application that acts as a financial middleman between your website and your customer, and between both of you and your bank accounts. Each facilitates the completion of online transactions, and the processing of online payments.

Payment gateway

A payment gateway is a service that receives the online payment request from your website and directs it to the payment processor.

Payment processor

A payment processor is a service that validates the purchaser’s credit card details  (e.g., those of your member, donor, or supporter) and checks if they have sufficient funds in their account to cover the payment. If the customer has sufficient funds, the transaction is authorized, and the funds are transferred from the customer’s account. The status of the transaction is transmitted back to the payment gateway which then sends a status message to your website.

Payment Gateway and Payment Processor


Payment provider

A payment provider (or payment service provider) is the company that operates the payment gateway or payment processor services. In some cases, the payment gateway and payment processor are combined into a single service known by either name.

Payment service or payment system

Where a payment provider offers multiple types of payment gateways – with different features and pricing – each type is referred to as a payment service or payment system. For example, PayPal is a payment service provider that offers a number of payment services or payment systems such as PayPal Payflow Pro and PayPal Express Checkout. 

Merchant account

A merchant account is another important term to understand. When an online transaction is successfully completed, the funds are transferred from the purchaser’s account to your merchant account, a special kind of bank account used exclusively to hold funds received from credit and debit card transactions. To accept online payments, you usually need to set up a merchant account with your payment provider. Funds accumulating in your merchant account are transferred to your organization’s bank account on a regular basis.

Merchant Account Payment Services


Anatomy of an online transaction: the process

To fully understand how online payments work, let’s follow a transaction from start to finish. In this way, you can see how your website, your member or donor, and your payment service provider all interact.

To get started with online payments, you typically need:

  • a merchant account – though some payment systems (such as PayPal) do not require a merchant account or can provide you with one
  • an account with a payment service provider
  • a web page with a button (e.g. Join, Donate, Buy) that initiates the transaction process – you can use code provided by your service provider or specialized shopping cart software

Once you’ve set up your web page and connected it to an online payment service, visitors to your site will be able to pay online for products or services. The online payment process begins when the visitor clicks the button to pay online for membership fees or an event registration, or to make a donation or purchase something from your online store.

On the online payment form that appears, the visitor enters their credit card information then submits the transaction request. Depending on your online payment service provider, the form may appear on your website, or your purchaser may be redirected to a form on your service provider’s website.

Online Payment Process

The transaction request, along with the credit card information entered by the purchaser, is securely transmitted to the payment gateway operated by your payment service provider. The information is encrypted so that no one – including you – can view the purchaser’s personal and financial information.

Your payment service provider will use a secure payment processing service – either their own or one provided by another company – to verify the purchaser’s credit card details and confirm whether the purchaser has sufficient funds to complete the transaction.

Online Payment Process

If the purchaser’s credentials are valid and there are sufficient funds to complete the transaction, your payment service provider will initiate a transfer of funds from the purchaser’s bank account to the merchant account associated with your website, and notify your website that the transaction has been approved. Depending on how your website is set up, that information can be used to automatically update records on your site (e.g., update your membership management or event registration database).

Online Payment Process

If the transaction is declined for any reason – invalid credentials or insufficient funds – no funds will be transferred, but status information will still be sent to your website.

Online payment options for non-profits and membership organizations

Once you’ve made the decision to accept online payments on your site, another decision looms: which payment service provider should you use? There are a multitude of providers, each with a different focus and set of options. Some are geared toward smaller or larger organizations, and some specifically to non-profits. Many provide additional features such as anti-fraud protection, but at a cost.

Choosing amongst the plethora of providers can be a daunting task. So, how do you know which online payment service is right for your organization? To help, we’ve created another article about How to Select an Online Payment Service Provider. But for now, here’s a list some of the factors that you should take into consideration as you begin comparing payment service providers:

  • Do they support organizations located in your country?
  • Do they support the currencies you want to use in your transactions?
  • What kind of fees do they charge – per transaction, monthly, setup?
  • What volume of transactions do you expect on your website?
  • Are payments processed on your website or theirs? Do you care?
  • What kind of payments do they accept – credit card, debit card, PayPal?
  • Do they support recurring payments?

We’ll look at each of these questions in detail in our next article – How To Select an Online Payment Service Provider – and help you choose an online payment service for your website.

If you are currently using Wild Apricot Membership Management Software, you can check out our "Online Payments" help documentation and video for information on which payment systems are supported by Wild Apricot.

online payment service

Additional Resources

Get a Special Report on Simplifying Membership Management

Enter your email and receive this special report in your inbox.
Creative Commons Licence

Understanding Online Payment Services by Wild Apricot is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Unported License. Based on a work at www.wildapricot.com.

Please include a link to https://www.wildapricot.com/articles/understanding-online-payment-services if you copy, distribute or re-transmit any of the documents that make up this guide. For permissions beyond the scope of this license, contact us.

See for yourself how easy to use and affordable Wild Apricot is:

Sign up to have the latest blog posts sent straight to your inbox!