SMB 101: A Beginners Guide to Payment Processing

As with many things, payment processing systems seem much simpler from a top view than they are. You may suspect that you simply need to go through the creation of a merchant account, await approval, and then process the payments of customers using credit cards. In fact, the system is more complicated and contains an assortment of factors. These include consideration of which payment options suit your customers, payment system software and hardware compatibilities, fees, security, and so on. A guide is essential to traversing the sometimes-muddy waters of payment processing.

What Is Payment Processing?

At its heart, payment processing refers to the business of automating transactions between merchants and customers. There are six key players generally involved. First is the consumer, offering credit card details online or through point-of-sale hardware. Next is the merchant, who accepts the customer’s payment. The third is the acquiring bank; this financial institution manages and receives those deposits from credit card transactions on the merchant’s behalf. After that is the credit card network; you are most likely familiar with these. MasterCard and Visa are two big names. Fifth is the credit card issuer This bank, company, or financial institution issues credit cards to buyers and holders. Finally, the payment processor handles routing details of payments by way of card networks, ending at the issuing bank.

How Does Payment Processing Work?

A merchant runs the credit card of a consumer; this data travels bearing an authorization request that goes to the processing company. The processor routes the information along to the card’s network. From there, it goes to the customer’s credit card institution. That bank either approves or denies the transaction, sending the result back toward the processor. The processor then receives the denial or approval and moves the information along to the gateway of the payment. Now, the settlement network can transmit data from the issuing bank to the acquiring bank. The acquiring bank then performs an interchange. The bank of the cardholder performs this with the acquiring bank. The card-issuing bank finally transfers the amount of the sale, with a fee subtracted for the interchange, to the acquiring bank. This acquiring bank deposits the funds into the account held by the merchant, minus a fee.

Processing Time, Fees, and Costs

Instant credit card processing approvals only take a couple of seconds. Modern businesses that want to achieve success must offer a credit card payment option because of the evolution of consumer behavior to not want to carry around cash. The fees for processing credit cards are interchange fees, service or assessment fees, and the payment processor’s markup. The first is the responsibility of the banks providing credit cards. Interchange rates vary by card brand. Payment processors collect assessment or service fees. The markup fee goes to the payment processor for use of their product. They can charge this monthly or per transaction.

Find the Best Payment Processing Method

Your payment processing methods should suit your business dynamics. It does not matter whether you are optimizing your penetration pricing strategies in addition to streamlining your method for collecting sales tax. The main component is a payment processing system that supplements your initiatives. Giving your consumers more ways with which to pay makes the purchase of your products much simpler and more convenient for them. Wherever you can, you want to smooth out and improve the shopping experience enjoyed by your customers. This ultimately boosts your sales.

Whether you are opening your first business, going through the myriad steps to untangle that confusion of necessities, or have been running a successful company for years and know how to juggle its different elements, learning the latest technology and regulation that surround the processing of credit cards is vital. Simple, reliable, and secure payment processing grants relief of stress while saving your business money. This system, which provides peace of mind for you and your customers, allows you to save in the long and short term alike.