Payment processing is about more than the management of transactions. The service you utilize to accept and apply payments from your customers actually plays a vital role in the success of your e-commerce endeavor, making it one of the most important considerations your business faces. Making the right decision requires a thorough knowledge of what a payment processor does, how it can benefit your business and what to look for to ensure that the service meets your specific needs.
Basics of Payment Processing
Payment processors are financial institutions that work in the background of both online and brick-and-mortar sales transactions. Among the most widely known are Worldpay, PayPal and Amazon Payments. The payment processor serves as the go-between for you as a merchant and the banks that complete the transactions, passing along vital information quickly, securely and uniformly.
Payment Processing Fees
There are a number of fees you may encounter when you use a payment processing service. These charges are also known as interchange fees:
- Start-up fees
- Annual service fees
- Minimum monthly fees
- Monthly statement fees
- Individual transaction fees
- Processing equipment lease charges
- Chargeback fees
What Are Payment Gateways?
The payment gateway is an important part of payment processing for online merchants, allowing you to securely take payments directly from your website rather than prompting customers to go to another site (such as the payment processor’s) to complete the transaction. This service is something like a security guard for the card information that’s passed over the internet to your payment processor, providing increased security against interception by unscrupulous parties. Due to this increased risk of data breaches for internet-based transactions, payment gateways are mandatory for e-commerce transactions.
How Does Payment Processing Work?
Once a customer initiates a payment on your site, the transaction will typically follow a five-part process:
- The customer’s card information, as well as your merchant ID and other transaction details, are sent through the payment gateway.
- Your payment processor receives the details of the transaction and contacts the cardholder’s issuing bank via the credit card network to ensure that the card is legitimate, active and holds the required funds.
- The issuing bank checks the card account and either accepts or declines the purchase, sending this information back to your payment processor.
- The approved transaction is completed, allowing the customer to receive their goods or services.
- The card-issuing bank then releases the funds to the bank account you set up for processing payments. The amount of settlement time between transaction completion and deposit of funds depends on a number of factors, including individual bank and payment processor batch processing guidelines.
Choosing a Payment Processor
While pricing is an important factor in choosing a payment processor, it’s not the only consideration. Other key criteria such as batch processing speed, fund availability times, added features and customer support.
PayPal, for instance, allows payment processing through browsers and apps, as well as mobile card readers. You can also offer customers a line of credit, as well as recurring subscription services. Worldpay, on the other hand, provides merchants with versatile and customizable options which allow business owners to accept payments from multiple channels depending on what works best for your business.
While it can be overwhelming to navigate the world of payments as a business owner, partnering with the right payment processor can whittle down the complexity and help you stay informed, guide you through any questions and help walk you through any changes in the industry.
References:
https://www.vantiv.com/vantage-point/payments-basics/what-is-a-payment-processor
