How Does the Merchant Payment Processing Industry Work?

Merchant Payment Processing

Business owners & managers are the most tech-savvy consumers. That is understandable as you evaluate several products & services required to keep the business running smoothly and effectively. Accepting credit cards allows you to make the payment. This means you will have to choose a credit card processing firm. The credit card processors actually are the important partners much beyond the merchant processing service, and making it an important business decision.

You do not have to become a professional, but you will be the better consumer in case you know how credit card processing works. It’s not just stops with that. You also need to know what type of merchant payment processing firm you need for your business. It varies depends on your business. Because there are various firms that provide dedicated service to food, logistics, and medical marijuana merchant processing payment services. Let’s see more about it in detail.

What’s the Payment Processor?

The payment processors generally act as the intermediaries between businesses and financial institutions, allowing both e-commerce & traditional businesses to accept different payment modes. At the basic level, the payment processors will evaluate the transaction’s validity in real-time just by contacting their customer’s issuing bank. Even though most of the businesses pay to use the payment processor, if a business accepts various payment methods then more customers they will be able to accommodate—increasing their overall revenue.

For businesses it is important to enter in a deal with payment processor, and payment processing will get integrated with POS systems. Basically, businesses will use a payment processing firm with a separate POS provider and select an all-in-one processing solution that provides the POS system & payment processing solutions. Such one-stop shops—called the payment services providers—will help the business to keep their payment data in one place that will ultimately save your time, reduce any error, and decrease the costs.

How Does the Payment Gateway Work?

The payment gateways are the software or servers that transmit the transaction information to getting banks & responses from the issuing banks (like if the transaction gets approved and declined). Basically, payment gateways facilitate the right communication within the banks.

Security is one highly important component of any payment gateways you choose; sensitive data like credit card numbers have to get protected from fraudulent activities. Even card associations have made a set of certain rules & security standards that should get followed by anybody with access to credit card information, which includes gateways. Such a set of rules & security standards is known as PCI-DSS.

Submitting any order gets completed by using an HTTPS protocol that safely communicates private info through various parties that are involved in this transaction. The payment gateways generally charge people who use it as per-transaction cost.

Most of the eCommerce merchants make use of the Payment Service Providers for gaining an access to the payment gateways and accept the payments. Payment Service Provider, in such case, can make this gateway functionality accessible for their merchant and customers.

Payment Processor’s Fees

The payment processors generally are essential for the businesses who want to accept various payment techniques, however, they have a certain cost. Some fees will be involved to pay every entity that is connected with this transaction. The payment processing fees will get a bit complicated, as every fee may be composed of other rates & fees. Nonetheless, here are a few common fees that we will have a closer look at:

Flat fees will make up the monthly cost of payment processor usage.

Transaction fees will be accrued on a per-transaction basis & made up of 3 components and they are processor markup fee, assessment fee, as well as interchange rate. All three components will ensure that the payment processor, receiving bank, issuing bank, as well as credit card network get a certain portion of this fee.

Incidental fees will occur on a case basis, like when the card account has got insufficient funds.

It’s worth to note noting that the payment processors generally provide many different costing models. The tiered models generally tend to be expensive ones—the breakdown of price isn’t transparent and there will be some hidden fees that are involved. Transparent costing structures include the interchange-plus that itemizes fees in the monthly statement or flat-rate that charges merchant the flat monthly fee & flat transaction fee.

Let us look at the settlement & funding.

  • The payment processor passes the transaction details to credit card associations, which communicate appropriate debits with an issuing bank in the network.
  • Merchants send various batches of the authorized transactions to the payment processor.
  • Issuing bank charges cardholder’s account the transaction amount.

About the author

Brian Altman

Brian Altman is with us for the last 10 years and manages technology-related newsletters, blogs, reviews, and weekly opinion articles. He is a passionate writer and is the chief of content & editorial strategies. He writes articles on artificial intelligence, Blogging, SEO, Technology, and cryptocurrency. Brian Altman is a professional writer from the last 8 years in this industry and, in leisure time, he likes to be connected with people via social media platforms.

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