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.
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
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.
As you move forward, look for
companies that provide a simple set-up, customer service, companies that adhere to PCI
Compliance, and can integrate payments.