Contents
Processing online payments - is a complex system that processes transactions between buyers and sellers when making purchases using credit and debit cards, e-wallets, bank transfers, and other payment methods.
Payment processing works like this:
- Initiating a payment: The customer selects the product or service and chooses a payment method. This can be a credit card, debit card, e-wallet, etc.
- Transfer of information: Payment data is transferred from the buyer to the payment processor. This information includes card information or other details for the transaction.
- Authorization: The payment processor transmits the transaction information to the payment system (e.g. Visa, Mastercard), which contacts the bank that issued the customer's card to confirm that sufficient funds are available and authorize the payment.
- Confirmation: After receiving a confirmation from the buyer's bank that the payment has been successfully authorized, the payment processor transmits this confirmation to the merchant.
- Completion of the transaction: Once the transaction is complete, the money is transferred from the buyer's bank account to the seller's account. This usually happens within a few days.
- Reporting and accounting: The payment processor provides reports to both the seller and the buyer about the transactions made and the status of their accounts.
The whole process is carried out in compliance with strict security standards to ensure the privacy and security of buyers' and sellers' data. From the user's point of view, electronic payments seem simple: choose an option, enter the data, pay. However, behind this simple process is a complex chain of actions, operations, and steps. Let's take a closer look at the details, analyze what online payment processing is and consider the entire sequence of actions to process an electronic transaction.
What is payment processing and why is it needed?
Payments processor plays a key role in transaction processing, acting as an intermediary between the customer using a bank plastic card, the merchant, the card issuer, the acquirer and the payment gateway. This organization, chosen by the merchant, acts as a payment processor and provides a wide range of electronic payment processing services for online businesses. A payment processor can process payments made by various methods, including credit card payments (Visa, Mastercard) or alternative methods (e.g., Alipay). It provides the merchant with its software solutions for integration into the website, providing payment processing, data storage, and transaction analytics.
Payment gateway VS payment processor
The payment gateway and payment processor perform different functions in the process of online payments. A payment gateway is a service that provides a connection between an online store or other online business and a payment system. It provides conditions for the transfer of payment data from the customer to the payment system, ensuring security and encryption of information. The customer encounters the payment gateway at the final stage of the checkout process, when they need to enter their payment card details or other data to make a payment. The payment processor, on the other hand, handles payment processing after the payment information has been transmitted through the payment gateway. It contacts the buyer's bank and the seller's bank, checks the availability of funds in the buyer's account, authorizes the transaction, and transmits the payment status information back to the payment gateway and the online store. Thus, the payment gateway transmits payment data, and the payment processor processes payments and communicates with banks to complete the transaction.
What is a processing center?
Processing center is a specialized service that processes online payments using credit and debit cards. This center acts as an intermediary between the website and the acquiring bank that accepts money from customers. The main function of the processing center is to provide card payment processing or Internet acquiring. This means processing payments made on the website, after which the money paid by the customer through the payment gateway is transferred to the merchant or seller's account. The processing center directs and tracks payments between the merchant (seller), the customer, and the banking system. Using a processing center is the most reliable way to organize online card payments from a bank.
Methods of online payment processing
There are various methods of processing online payments, including the following:
- Processing through a bank account and payment gateway: In this case, the store's account is used to accept payments made by debit and credit cards. To make transactions, the customer must manually enter their payment details through a payment gateway.
- Using a third-party payment processor: Third-party payment processors, also known as payment aggregators, provide the ability to process debit and credit card payments without the need to be linked to a merchant's checking account. They usually offer simplified rates with a flat fee for using their services.
Both methods have their advantages and disadvantages, and the choice of a particular payment processing method depends on the needs and preferences of a particular business.
How does the payment processing work?
Payment processing is a complex system consisting of several participants and processes that ensures the secure and efficient processing of electronic payments. Here's how payment processing works:
- Merchant (Seller): A person or company that provides goods or services and accepts payments from customers.
- Issuer (Client's Bank): This is the bank that issues the customer's plastic card and is responsible for managing the customer's account.
- Acquirer (Seller's bank): This is the bank that processes payments from customers to the merchant.
- Processing center: This is a specialized organization that processes payments between the merchant, issuer, and acquirer.
- International payment system (for example, Visa or Mastercard): This is a system that sets standards for payment processing and ensures communication between all participants in the process.
- The buyer of a product or service: This is the person who makes the purchase and makes the payment.
The payment processing process includes the following stages:
- Confirmation of the buyer's solvency: The processing center contacts the issuing bank and requests information about the customer's card account to make sure that he or she has enough funds to make the purchase.
- Debiting funds and crediting them to the seller's account: After the payment is confirmed, the funds are debited from the buyer's account and credited to the seller's account through the acquiring bank.
- Fees and reporting: During the payment processing process, fees are charged and distributed among the various participants in the system. In addition, transaction reports are generated for financial accounting and regulatory reporting purposes.
All of these operations are automatic and are backed by the high level of security and availability required for efficient online payments.
Component elements of transaction fees
Payment processing fees include several components:
- Transaction fee of the payment system: This fee depends on the type of card, type of transaction, and other factors such as the amount of payment, frequency and number of transactions, and the need for enhanced fraud protection.
- Fixed acquirer's fee: This is a payment processing fee charged by the acquirer to the merchant. The amount of this fee can vary depending on many factors. Usually, the bigger the business, the lower the fees. For small businesses with a small and unstable number of transactions, a fixed minimum fee may be set.
- Unforeseen expenses: This is an additional fee for any additional services provided by the payment provider. For example, the ability to exchange currency on the merchant's internal account or other additional services may be charged at an additional cost.
All of these components can vary depending on the terms of the contract between the merchant and the payment provider, as well as the type of business and the volume of transactions processed.
How can merchants ensure profitable payment processing?
For a merchant, reducing the interest rate for payment processing can be difficult, but not impossible:
- Increase in transaction volume: As already mentioned, acquirers usually offer more favorable terms for higher transaction volumes. Therefore, as the business grows and the number of transactions increases, the merchant can get more favorable terms from its acquirer.
- Revision of the contract: In some cases, it is possible to renegotiate the terms of the agreement with the acquirer and try to negotiate more favorable terms based on the volume of transactions and the duration of cooperation.
- Market research: Research the offers of different acquirers and payment providers. You may find a company that offers more favorable conditions for your business.
- Improving the business process: Efficient business management can help increase profits and transaction volume, which in turn can affect the terms and conditions offered by the acquirer.
It is important to remember that processing conditions may depend on various factors, including the type of business, industry, company reputation, and region. Therefore, it is recommended that you carefully study and evaluate all aspects before deciding on an acquirer.
Processing connection: features and requirements for the merchant's website
In order to successfully connect processing to a merchant's website, a number of requirements and features must be met:
- A fully functional website: The merchant's website should be fully functional, and all options for making secure payments should work stably.
- Compliance with the requirements of payment systems: It is important that the website meets the requirements of international payment systems such as Visa and Mastercard, in particular, in the field of security and data protection.
- Information about the seller and website policy: The website must provide information about the seller (data of an entrepreneur or legal entity), as well as a privacy policy, delivery and return policies, and terms of use.
- HTTPS protocol: The website should be based on HTTPS protocol to guarantee the security of the data transmitted between the website and users.
- Compliance with the law: A merchant's business must comply with international and national legislation, including regulations on online commerce and consumer protection.
As for the process of connecting to a processing center, the process is usually quite simple. Processing centers usually provide various options to help customers with the integration, including interaction with customer support, access to video tutorials and other training materials. There are usually several options for connecting, including using APIs, plugins, or modules for different content management platforms.