The payment processing industry has changed considerably over the years; therefore, it is important for merchants and other businesses to keep up with new standards.
Payment processing integration allows payment transaction data derived from the debit/credit card to be deposited directly into the merchant’s bank account.
In this article, we’ll read about payment processing, how it works and what the various payment processing methods are.
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What Is Payment Processing?
In simple terms, payment processing refers to accepting and handling customer payments. This process includes various steps, such as capturing payment information, authorization of the transaction, and transferring funds from the customer’s account to the merchant’s account.
For example, when a customer makes a purchase using a credit or debit card, the payment information is captured by the merchant using a point-of-sale terminal or an online shopping cart. The payment information is then sent to a payment processor, who verifies the information and authorizes the transaction. Once the transaction is authorized, the funds are transferred from the customer’s account to the merchant’s account.
The whole process happens in a matter of seconds and is made possible by the use of specialized software and secure networks to process and transmit transaction data.
Overall, payment processing is a crucial step in the e-commerce and retail industry. It enables customers to pay for goods and services securely and conveniently while ensuring merchants receive the funds they are due.
Why Is Payment Processing Integration Important?
Customer payment preferences have changed a lot; businesses are looking for more ways to offer the ability to pay in multiple ways.
In the past, merchants had to wait for batch reports from their transaction providers, and every detail had to be entered manually. There was a high risk of human error because of this reliance on manual inputs.
As a result of the payment processing integration, transaction data from various channels can flow smoothly into the business, keeping a tab on tasks that previously required human intervention.
Now, businesses have realized that customer preferences in terms of payment processing allow them to optimize their accounting operations and real-time access data efficiently and effectively.
How Does Payment Processing Work?
Payment processing includes a customer, payment processor, payment gateway, bank/credit card company, merchant, merchant account, or business account. Credit card transactions may seem simple, but they entail much more.
In one transaction, a payment is processed, verified, accepted, declined, or the money gets transferred. This complete process takes less than minutes; let’s get to these steps in detail:
Point of Purchase: The point of purchase is the initiation time when the customer initiates the purchase with the merchant by presenting their payment method for goods or services.
Payment Gateway: A payment gateway connects the information from the customer’s bank to the merchant account through the payment processor. Consider a payment gateway as an online point of sale; in this case, a gateway authorizes the payments to make card-not-present transactions.
In simple terms, the payment gateway enables the merchant and buyer to communicate the approval or decline of the transaction.
What Is a Payment Processor?
A payment processor acts as a mediator between the merchant and the bank by managing the credit card transactions. It validates and authorizes payments by ensuring that the buyer has enough funds and that the card they are using is valid for transferring the funds into the seller’s account.
This process can be completed with in-person payments and online payments.
In addition, a payment processor can ensure that all payments are sent over a secure encrypted connection to comply with security regulations, including PCI compliance standards.
Here’s How Online Payments Work in General:
- The customer makes the purchase by adding products to the merchant shopping cart.
- Customers enter their payment information on the secure order form of the payment service provider.
- The merchant then submits the order details by sending the customer’s data and card details to the payment processor.
- The service provider sends the transaction details to the bank (or the payment provider if the customer has chosen an alternative payment method).
- The acquiring bank sends this transaction to the issuing bank to verify the card details and to transfer the funds from the customer’s bank.
- The acquiring bank gets authorization from the issuing bank and informs the merchant if the transaction is processed.
- The merchant informs the customer, and the transaction gets successfully accomplished.
- The acquiring bank then deposits funds from the sale into the merchant’s bank account.
**Related Read: Credit Card Processing: A Detailed Guide for Merchants**
What Types of Payments Are Processed by Payment Processing?
Online payment processing allows you to accept many different payment methods. The most common ones include:
- Debit/Credit Card: Debit and credit card payments are the most common and popular means used by customers.
- Digital Wallets: In this method, customers register with an e-wallet company, such as Apple Pay or Google Pay, and link their bank account to their e-wallet account.
- Bank Transfers: Although less popular than other payment methods, bank transfers give customers complete control over their transactions as they are the ones authorizing them.
- E-Checks (ACH): Also known as electronic checks, this method of payment is not as widely used as others because it does not process instantly.
**Related Read: Alternative Payment Methods: What Businesses Need to Know**
Which Online Payment Methods Should Merchants Accept?
When it comes to payment methods, you have to choose the best one for your business. There are many businesses that accept cash-only, but there are also those that accept credit and debit cards. It not only improves business cash flow but also provides you with a steady, reliable income.
