What is Payment Processing?
In a nutshell, payment processing is the transaction that happens between a merchant (or seller) and a consumer. The act of completing the transaction, either via credit or debit card is part of that processing.
While there are many other forms of payment that customers use (bitcoin, check, cash, etc…), when we talk about payment processing, we’re only referring to transactions with credit or debit cards.
Your customers only see the swipe or tap, but there’s a lot more that goes on behind the scenes. After a card is utilized by the customer, a series of actions take place. The card is read, the amount is verified by the processor, (or if funds aren’t available: declined), and then the money is approved and transferred to your merchant account.
Understanding Different Payment Processing Companies
Payment processor companies handle the transaction between you and the buyer. Think of them as a type of mediator of the sale. Some of the more well-known mediators include Stripe payment processing, Square payment processing, and PayPal payment processing.
With the increase of online shopping, it’s more important than ever to have the right company involved with payment processing. Unlike in-person shopping, you assume you will receive payment for the item the customer wants to purchase, and the customer relies on the item to be sent. Transactions like this are what make payment processing mediation all the more necessary.
The processor also has security checks in place to make sure the data for the credit card is correct and fraud is not being attempted. The customer is protected in the case of overcharge or return. If you made an error in the amount charged or the customer returns the item, the processor refunds the amount and charges a fee for having to do so.
How to Choose a Payment Processing Company
Unlike choosing your socks, or designing your display window, dealing with payment transactions is not something you can handle alone. All business owners need to set up a merchant account in order to receive credit or debit card payments and then choose a payment processing company to mediate your transactions. If you choose not to, you will not be able to accept any form of credit or debit payments, which will inadvertently deter a lot of potential customers.
The first step in selecting which payment processor to use is whether you want to go through a bank, an online provider such as Scorpion, or a processor company like PayPal. Other things to consider are the monthly amount, where you get approved for a merchant account, and services they provide.
Keep in mind you also need to set up a payment gateway. The gateway, much like the name implies, is the path from your merchant account to the payment processor. Some business owners choose to combine the two services (merchant account with payment processing) into the payment gateway. Choosing to do so will also help eliminate options to only those who provide the combined service.