As a business owner, there are tons of tasks you need to do before you can open your doors. The good news is that there are many resources out there to help you on your journey. Whether you operate a shop or an online eCommerce platform, one thing you will have to do is select the best payment processor for your business.
That in mind, facilitating the purchase and checkout process for your clients is not as straightforward as it seems. Selecting the best payment processor to check and authenticate credit and debit card transactions requires study and patience. You may read reviews of all top card processors, while this page serves as a handy reference guide to payment processors and allowed payment methods.
So, let’s begin with the fundamentals of credit card processing.
Payment Processors – the Fundamentals
What is the definition of a payment processor?
A payment processor is a company that processes transactions for your consumers to purchase your items. It implies that the payment processing provider communicates and passes data from your customer’s credit or debit card to both your bank and your customer’s bank. If your customer’s card has sufficient money and is legitimate, the transaction should go through. It all occurs in a matter of seconds.
The payment processor verifies security measures, such as the accuracy of the customer’s card details. Since fraudulent activities occur so frequently, the payment processing company’s responsibility is to ensure the utmost security.
If consumers dispute any charges, the payment processor will handle it. However, it does not imply they will do so for free. The consumer will not be charged, but the business will be. Therefore, if you make a mistake at checkout or a client returns an item, your business will suffer a cost for transferring funds from your account to the payment processor and back to the customer’s account.
What’s the difference between a merchant account and a business account?
Merchant accounts are critical for companies, particularly those that take payments online. Without a merchant account, you will not be able to take payments from a customer’s credit or debit card. This is due to the fact that you will not have any place to store the funds. A merchant account is a bank account that accepts payments through debit and credit cards, but a business account helps you manage your business funds.
What is the definition of a payment gateway?
The payment gateway establishes a connection between the payment processor, the merchant account, and the credit or debit card issuers. The card issuers are the specific companies like Visa, American Express, or Capital One.
The payment gateway also includes the process of linking your customer’s bank account to your merchant account. Without a payment gateway, a critical component of executing a financial transaction is lacking. You may have all of the necessary components to transfer money, but without a payment gateway, you would not be able to accept a customer’s payment.
A payment gateway may be used in conjunction with payment processors and merchant accounts. It just depends on whether they outsource the job or have an in-house staff. If a third party is employed to execute the transaction, it talks with the credit card company.
Who is responsible for payment processing?
A payment processor enables your company to perform transactions with your customers. Numerous parties are engaged, but each transaction involves around five to six significant actors. These parties include:
- The client
- The business/merchant
- The processor of payments
- The bank or credit card company of the consumer
- Bank of the business
How are credit card transactions processed?
When selecting the best payment processor for your company, it helps understand the entire payment process. Here is an in-depth look at the credit card transaction process.
- Credit card processing begins at the consumer level. The customer makes a payment using their credit card, and the merchant receives the payment information.
- The merchant takes and collects payment information in one of two ways: a.) in person during a “card-present” transaction; or b.) online or over the telephone during a “card-not-present” transaction.
- The payment information is then sent to the credit card processor. The credit card processor in turn transmits it to the card network.
- After that, the card network transmits payment information to the consumer’s bank.
- The consumer bank is responsible for determining if the cardholder has adequate cash or credit available to execute the transaction. Additionally, the bank may conduct security checks to verify if the transaction is authentic. It then accepts or refuses the transaction and notifies the credit card processor of its decision. The three most often encountered causes for a denied transaction are as follows: a.) insufficient funds; b.) credit limit reached; c.) illegal purchase (e.g., if the card is lost or stolen).
- If the transaction is approved by the consumer bank, the money is transferred from the consumer’s account to the merchant account and then enter the settlement procedure.
- Meanwhile, the notice goes back from the consumer bank to the point of sale. This often results in a message on the card reader or virtual terminal informing the merchant whether the transaction was “authorized” or “rejected.”
- Settlement is the last phase in the process, which might take several days depending on the card network involved. Settlement is the procedure by which the consumer bank transfers the transaction money to the merchant bank. These funds are less any applicable processing costs.
Selecting the Best Credit Card Processor – Summary
When operating a business, it is crucial you make it easy for customers to make payments. This is true if these payments are online or in person. Customers will more likely form brand loyalty to a business that is easy to do business with. We have all been there – you go to a shop or business to pay for something and it is such a difficult process. You usually walk out of there frustrated and discouraged saying you will never go back there.
This is why you need to pick the best payment processor for your business.
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