What Is Payment Processing?
Although a credit card transaction may appear simple, it is actually complex, with many participants. Payment processing services handle debit and credit card transactions for businesses. Payment processing services speed up card transactions.
Payment gateways securely transmit data to enable money from the customer’s bank to be transferred directly to a merchant account. This all happens in seconds. This results in a customer that successfully purchases without cash or checks and a business that closes a sale.
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How does payment processing work?
A series of electronic actions are performed to complete a transaction when you use your debit or credit card to pay for a purchase. Payment processing involves the customer, merchant/business, a payment process, payment gateway and bank/credit card company. A credit card transaction appears simple on the surface. You simply need to swipe your card and that’s it. There’s more to it. A single card transaction can be used to make a payment. The payment is then processed, verified, declined or accepted, and the money transferred. It takes only seconds for the entire process to complete. Let’s take a look at the steps.
Point of purchase
When a consumer makes a purchase, they are given the option to add payment methods. Debit cards and credit cards, money orders, cash, checks and cash are all available. Consumers are increasingly using digital payment methods for online and in-store purchases. According to the 2020 Deloitte Report, worldwide digital transactions hit $4.1 trillion in 2019. According to the publication, this number is expected to rise by 13% every year until 2023.
Payment Gateway
A payment gateway connects securely information sent from the customer’s bank through the payment processor to the merchant account. Although the payment gateway can communicate a payment decline, acceptance or rejection, it is the processor who handles the transaction by gathering card information from the customer’s bank (debit/credit card) and transferring that information to the merchant account.
Payment Processor
To begin, a payment processor is not only the person who receives and counts the money. A payment processor also serves as a courier, transporting information from credit cardholders to merchant accounts. This is where accepted payments are ultimately received. The payment processor validates card security and allows for the transfer of funds between issuing banks and merchant accounts.
Issuing bank
The issuing bank is a financial institution connected to a credit card customer.
Merchant Account
After a credit card purchase has been authorized and processed, the payment processing company aids in the transfer of cash from the issuing banks to the merchant account. This account lets you take digital and debit payments as well as credit cards.
What is a point of sale?
The point-of-sale (POS) is the center of a merchant’s payment infrastructure. POS systems are hardware and software that allow merchants to take payments, keep track of inventory, and perform other business activities such as making appointments and paying salaries. Customers may pay with a variety of payment methods, such as a credit card like American Express or a digital wallet, debit card, or online funds. A merchant’s POS software processes all sales transactions and includes the addition of sales tax, incentive tracking, and receipts.
A payment processor is not the same as a point of sale (POS) system. Payment processing may be included on some POS systems. Learn more about point of sale (POS) systems and how they work.
What is a Payment Gateway?
Despite the fact that they are separate entities, a payment processor and a payment gateway are both required for the completion of a credit card or debit card transaction. The payment gateway establishes an encrypted connection between the two parties that protects the confidentiality of credit card information. While the payment processor handles money, the payment gateway transfers data securely.
The payment gateway validates the validity of a card and prevents personal identifiable information from being revealed during transactions. The cardholder makes a purchase. Data from the card is transmitted to the payment gateway. This data is then sent to the payment processor. After the transaction has been verified by the card-issuing banks, the code is sent to a payment processor who then transmits the code to the gateway. The merchant and the customer then receive a message on their card reader confirming that the payment has been completed. This entire process takes only a few seconds.
If you accept debit and credit cards through a POS system, you may not need a separate payment gateway. The payment gateway from square works with payment gateways to send money directly from the issuing bank into a merchant bank.
Sometimes payment gateways can be integrated with virtual credit card terminals or offered as an in-house service by a processor so that merchants can work with one entity for cardholder transactions. All businesses should be aware of the importance of security. Many businesses find the additional layer of protection offered by a payment gateway appealing.
What is a payment processor?
On behalf of merchants, a payment processor processes credit and debit card payments. Payment processors can approve transactions, notify the issuing bank, and move funds to a merchant account. There are several pricing choices available.
A monthly fee is sometimes required to accept credit and debit cards. Each transaction made with a credit or debit card may incur fees for the merchant. The credit card issuer may charge an interchange rate (also known as a swipe cost) to merchants.
Payment processors often charge various transaction fees, which may include interchange-plus, flat-rate, or both. The processor will charge a fixed interchange fee plus an additional fee in an interchange-plus model.
A processor may charge 1.8% of the purchase for the interchange fee, followed by 0.3% or 7cs as an extra charge. Flat-rate fees are generally greater than the interchange rate and are charged at a constant rate. The cost of the interchange rate is covered by a processor at 2.9%.
Some processors may charge flat monthly payments for merchant accounts that provide these important services. In the case of a chargeback or insufficient funds, merchants may be fined additional amounts.
The Payment Card Industry Data Security Standard, as defined by the PCI Security Standards Organization, is that payment processors must follow. Throughout the whole payment process, cardholders’ data must be securely handled, transferred, stored, and managed by service providers and merchants in order to be compliant with the PCI standard. Business owners should make sure their credit card processor is PCI compliant. It’s critical to safeguard your clients’ information in order to be a successful and profitable company.
POS systems that are chip card-compatible are recommended for businesses that conduct in-person transactions. In person purchases using EMV cards provide greater fraud prevention protection. Embedded cards have become the norm in fraud prevention. Payment processors can generally supply EMV compatible terminals.
Payment processors provide a variety of services, including payment gateways and merchant accounts. This allows you to use one credit card processing company for all transactions.
What is the Difference between a Payment Processor & a Credit Card Processor?
A payment processor is a company that processes credit card and debit card transactions. Credit card processors are people who process credit card transactions. They may also be referred to as credit card processors.
What is a Merchant Account?
The merchant account is a reserve for cardholder transactions that are still in progress. A debit or credit card payment is transferred from the card-issuing bank to a merchant account after it has been authorized and processed. These funds are then credited to the company’s account.
A business bank account and a merchant account serve different purposes. Rent payments are an example of operational costs covered by a business account. Credit card processing is the only use for merchant accounts.
The merchant account is where credit card payments are received and processed. After cardholder transactions have been authorized and completed successfully, the money is sent to a merchant bank account. Within 24 hours to 3 days, ACH transfers are used to move money from a merchant account to a company’s bank account.
Merchants have accounts created by payment processors, where funds can be stored. Merchants’ accounts may be linked to a POS system or bundled with payment processors. Small businesses may choose to connect with a payment aggregator (payment facilitators), such as PayPal or Stripe, in order to start processing payments. This will allow them to utilize a central merchant account and become a sub-merchant.
Credit Card Processing Companies
Clove, Dharma Merchant Services, Flagship Merchant Services, Flow payments, Helcim, Intuit QuickBooks, Merchant One, National Processing, Payment Depot, PayPal, Sam’s Club, Shopify, Square, Tax by Fattmerchant, Stripe.
The goal of Balance Payment Processing is to provide excellent solutions and service in the payment processing sector, and they can be contacted at 800-354 6256 or [email protected] Learn more about Balance Payment Processing’s mission, goals, and services by visiting their website at Balance Payment Payments
