Payment Processing: What Does It Mean for Your Business?
This article was published on April 30, 2020, and updated on December, 2022.
By 2023, 91% of the American population will be shopping online. In fact, the global online shopping market will already balloon to $4 trillion this year, which means that billions of payments are processed every day.If you’re a business, you know that it’s very important to stay ahead of the game and not miss the opportunity of earning big online by investing in payment processing.The question is: what exactly is payment processing and what does it mean for your business?
Payment processing is essentially the term used for the automation of transactions between merchants and customers through a third-party provider called a merchant provide.
This middleman isn’t only tasked to process all online payment, but it is also authorized to accept or decline them based on a set of parameters. This will help protect the business against fraudulent activities and high chargeback rates
The Key Players
There are three key players when it comes to payment processing: the merchant, the customer and the technology. As the merchant, you need to build a partnership with a merchant bank or acquirer that will accept payments from your customers and deposit them into a merchant account for your business. The customer, on the other hand, will need to have a credit or debit card in order to make online payments. The issuing bank approves or declines these transactions depending on the current standing of his account.
The technology is composed of the payment gateway and the payment processor, which automates all transactions between you and the customer. The payment gateway is essentially the software that connects your website’s shopping cart to the processing network. The payment processor or merchant service, on the other hand, moves all transactions to the network, sends you the billing statements and takes care of all necessary transactions on your behalf. More often than not, it’s ideal to have the same merchant bank and payment processor for smooth and easy transactions.
As a business owner, you have to understand the entire payment processing journey, from the moment your customer buys an item to the time you get paid: After a customer buys an item using his credit or debit card, the information goes through the payment gateway to the payment processor in an encrypted system to protect your customer’s information from fraud. The payment processor sends an authorization request to the customer’s bank. If the payment authorizes the transaction, the payment processor gets back to you with a sale.
After the transaction is completed, the issuing bank then sends the funds to the merchant bank to deposit the money to your account. The process of authorizing and completing a transaction can just take one or two seconds, but it may take a few days for the money to be deposited in your account. But there are merchant banks that already supply you with the money even before the issuing bank sends the payment to them.