Payment processing is the behind-the-scenes procedure that enables businesses to accept credit and debit card payments from their clients.
Payment processing comprises complicated procedures and systems that all work together to assure safe and quick transactions, even though it seems simple and smooth to consumers.
In the United States, it is predicted that in 2022, more than 80% of transactions will not include cash. Additionally, online payment transaction values are predicted to increase by more than 15% between 2020 and 2025.
A payment processing platform can streamline and expedite payments in an increasingly cashless society where most payment services are online or through credit cards. It benefits both customers and businesses.
Payment processing platforms are merchant service that handles credit card processing for traditional brick-and-mortar establishments and e-commerce websites. They might be viewed as the electronic equivalent of a cash register.
However, it must be practical and safe, like any cash register. It is crucial to comprehend how payment processing platforms operate, what to search for, and what possibilities are available before choosing one.
This article will delve into payment processing and give you a clear grasp of its various processes, interactions with businesses and customers, and how to set up your company to confidently take integrated payments.
What is Payment Processing?
The procedures used to transmit money from a client to a business are called payment processing. For consumers, processing payments could seem as easy as a quick tap, swipe, or tap with a credit or debit card.
For a firm, it is more than that, though. Cardholder (or buyer), Merchant (or seller), Issuing bank (Issuer), Acquiring bank (Acquirer), Payment processors, payment processing platforms, and Card networks (Visa, Mastercard, etc.) are just a few of the parties the procedures involved.
Each party cooperates to ensure a safe and effective transaction by playing a specialized part in the payment process.
That is a lot, right? As a business owner, you must comprehend each step in the payment processing process. But first, let’s talk about how business processing works.
How do Payment Processing Platforms work?
Purchase
A credit card transaction starts when a cardholder swipes or dips their card to purchase at a merchant location. The merchant’s Point of Sale or POS system transmits the transaction request to the merchant’s payment processor after the card has been swiped or dipped. The processor notifies the appropriate credit card network of the transaction request. The card issuer then receives the request from the card network and decides whether to allow or deny the transaction, depending on the available funds.
Authorization
Authorization is the process of confirming the legitimacy of a credit card and the maximum balance permitted on the buyer’s credit line. The transaction is completed if the authorization is allowed; otherwise, it is rejected, and the consumer must provide another payment method.
A system can reject a transaction for many reasons, including a lost or stolen card, an account that isn’t in good standing, or a lack of sufficient cash. If the merchant receives a “referral or call” notification, they must call the issuing bank to complete the transaction.
Other decline messages include “hold-call” and “pick-up card,” typically displayed in response to a report of a lost or stolen card. The issuing bank requests that the card be removed from the cardholder in the following situations. Other notifications include “expired card” and “invalid account number.” A notification that reads “unable to connect, error” denotes a network or payment processing device issue.
Capture
Capture refers to the procedure of gathering and organizing credit. When a transaction is approved, a hold is put on the cardholder’s funds, and the card issuer notifies the card network, which notifies the processor of the merchant, who notifies the merchant.
Clearing and Settlement
Clearing and settlement take place in the end. When a card-issuing bank trades payment transaction processing data with a merchant acquiring bank for the permitted money, this is known as clearing. The settlement, which starts when a merchant submits a transaction to their processor and ends with transferring related monies to a depository or liability account, is the buying and selling of transactions among merchants, processors, acquirers, and card-issuing institutions.
