There are payment gateway and payment processing service providers behind every firm, in-store or online. They ensure that transactions are executed seamlessly to improve the customer experience and the company’s reputation.
On the surface, a credit or debit card transaction’s entire procedure looks straightforward and quick, requiring only a few seconds. However, more is involved than simply tapping a card on a POS terminal. Payment processing services involve a variety of stages and parties, including:
- Customers merchants/ businesses
- A payment processor
- Payment gateway
- Bank/credit or debit institution
- Merchant account and commercial bank
What is Payment Processing service?
Businesses that offer credit or debit card payment alternatives to their consumers require a payment processing service provider to assist them with depositing funds into their bank accounts. All stakeholders collaborate to make the payment process efficient and simple for merchants and clients. Payment processing services are responsible for completing the necessary procedures from transaction authentication through settlement. They guarantee that all non-cash transactions result in merchants receiving funds in their bank accounts. These transactions primarily involve credit cards, debit cards, electronic wallets, etc.
Payment processors operate as intermediaries between merchants, customers, and financial institutions that handle transaction processing. They are an integral component of the global financial system.
Payment processors are entities that synchronise non-cash transactions by authenticating all information and distributing payments to the merchant following the completion of a sale. As a payment processor, you must ensure that the merchant and issuing bank receives its cash. The network payment processors enable them to facilitate a data flow between all parties.
What is a Payment Processor?
A payment processor is a vendor responsible for handling the practicalities of receiving credit and debit card payments. Payment processors transmit card data from wherever users submit their credit card information — card readers, checkout webpages, or even smartphone-specific hardware — to the financial institutions involved in the transaction.
Payment processors are also crucial to the security of online payments. Not only do they ensure that customers’ bank accounts and credit cards have sufficient funds and credit limits, but they also safeguard customers’ sensitive financial information from unauthorised access by third parties.
Types of Payment Systems
Within an online payment procedure, you will be able to accept a variety of payment options. The most prevalent examples are:
In a card transaction, the buyer submits the card data, which are then transmitted to the payment processor.
E-wallets are a significant additional payment that can be processed. Those who choose this payment method have to register for the e-wallet using their bank account or debit/credit cards.
Typically preferred for business-to-business (B2B) purchases, this way of payment allows the shopper entire control over the transaction, as they must authorise the transfer using their online banking.
Payment processing service providers facilitate transactions between merchants and customers. They act as a link between clients, merchants, card associations, and issuing banks, making them an integral aspect of the financial sector.
How does Payment Processing work?
Authorisation, funding, and settlement are all aspects of payment processing services. At the point of sale, when a customer purchases a product or service, payment is performed with the card (POS). Although the transaction occurs in a matter of seconds, the underlying mechanism is sophisticated.
The merchant transmits a request for authorisation of the transaction to the payment processor, which then takes the following steps:
- The payment processor sends the transaction to the card associated with the issuing bank.
- The issuing bank accepts or declines the transaction based on predetermined criteria.
- The issuing bank then returns an acceptance or refusal status to the merchant bank and, ultimately, to the merchant.
After the authorisation procedure comes to the settlement and funding processes, the transaction funds are deposited into the merchant’s account. The retailers submit the authorisation request to the payment processor, who subsequently forwards the information to the card association. The card association is linked to the issuing bank; consequently, the issuing banks receives the transaction information and carry out the following procedures:
- The issuing bank charges cardholders a fee for each transaction.
- The issuing bank then sends the money minus the interchange fee to the merchant bank.
- The amount is transferred to the merchant’s account by the merchant bank.
Components of the Payment Processing platform
Any payment processing solution comprises of three elements:
A merchant account is required for every business that accepts online payments. A merchant account is a bank account where the funds collected from consumer transactions are deposited. Without merchant accounts, it is difficult to accept payments online.
Payment processor facilitates online transactions. The payment processor provider talks with the merchant’s and customer’s banks to determine the credit/debit card status of the customer. If the card is valid and there are sufficient funds, the customer’s transaction will be processed.
In addition, the payment processor takes the required security precautions to protect consumer safety and eliminate fraud possibilities.
As its name suggests, a payment processing gateway is a connection between a merchant account and a payment processor.
People frequently get the phrases payment processing and payment gateway confused.
How to choose a Payment Processor?
Payment services are a vital aspect of businesses that take credit or debit cards because they must receive money that does not arrive in the traditional form of paper currency. In addition to price packages, examining the following factors when selecting a payment processor is necessary.
The following factors may be crucial when selecting a payment processor:
- Superior customer service
- Fraud risk management solutions
- Tools to aid with business expansion
- Adaptability in business transactions
In addition to the considerations mentioned above, there is also the reality that not all payment service providers support all types of transactions. Some may specialise in online processing and card-not-present (CNP) transactions, while others focus on in-store payments. Like the POS, the CNP payment processor is an online payment gateway.
If your firm accepts card payments in the present day, you need a payment processor. However, there is no universal service. As demonstrated in the previous section, there are numerous models and products to pick from, each suited to meet the demands of various enterprises, ranging from little corner stores to giant online retailers.
1. What does payment processing entail?
Ans: Payment processing is the method by which companies conduct card (debit and credit) transactions. A customer’s funds are transferred quickly to a merchant’s account with faster card transactions and payment gateways securely sending data. All of this occurs in a few seconds.
2. What is a payment gateway?
Ans: Payment gateways are merchant services provided by an eCommerce application service provider that enables credit card or direct payment processing for online enterprises, retailers, and traditional brick-and-mortar establishments.
3. What does a payment processor do?
Ans: A payment processor is a system that facilitates financial transactions, typically utilised by a merchant to manage transactions with clients using credit cards, debit cards, and bank accounts.
They are often divided into two categories: front-end and back-end.
4. How does a payment processor function?
Ans: The transaction is validated and approved by the payment processor. The bank of the customer transfers funds to the processor. The processor transfers funds to the merchant’s bank account. Next, the processor transmits the transaction’s approval or denial status to the gateway.
5. What constitutes a merchant account?
Ans: A merchant account is a type of bank account that enables businesses to accept various forms of payment, including debit and credit cards. An arrangement between an acceptor and a merchant acquiring bank establishes a merchant account for settling payment card transactions.
6. What constitutes merchant services?
Ans: Merchant services is an expanded range of corporate finance services. Its most common usage typically refers to merchant processing services that let a business take a transaction payment via a secure (encrypted) channel utilising a customer’s credit card, debit card, or NFC/RFID-enabled device.