Payment processing

What is payment processing and how does it work?

Payment processing can be described as the path that each transaction takes from point A to point B. At first glance, this process seems easy and fast, but the technical side is much more complicated than we think. The processing of each transaction involves several participants, and each of them is irreplaceable. Here’s more about all the parties involved in payment processing.

Acquirer

An acquiring bank or acquirer is a financial institution where a business holds its merchant account. In return, the acquirer provides businesses with hardware/software to accept and process debit/credit card payments. Thus, acquirers take full responsibility for transaction processing on behalf of a merchant.

Issuer

An issuing bank or issuer is responsible for processing on behalf of a consumer. This financial institution provides customers with debit/credit cards. The issuer receives a card authorisation request from the card network, checks the state of the cardholder’s bank account and approves the transaction if there are enough funds to withdraw.

Card network

Card networks (Visa, Mastercard, Discover) set the rules for all parties involved in payment processing. They run the whole payment system, empowering banks and other financial institutions to issue cards under their brand and giving acquiring banks the right to conduct financial transactions.

Payment processor

A payment processor facilitates communication between all parties involved in a transaction. This is a must for every merchant who is looking for ways to deliver their products worldwide. The processor provides merchants with tools for processing financial transactions and helps them to set up acceptance of different payment methods.

Payment gateway

Payment gateway creates a connection between a seller’s website and processor, securely encrypting credit card data and moving them for further processing. Essentially, it facilitates a seamless and highly protected flow of online transactions.

What is the difference between a payment processor and a payment gateway?

Although merchants have long been using a payment processor and gateway to process transactions, some of them still confuse the two. However, these terms aren’t the same.

The term payment gateway refers to software for online payments processing. It serves as an interface that receives a customer’s card details, encrypts them to prevent fraud, and then transfers the transaction information to a processor. In its turn, the processor receives the data and routes it between other processing participants. Basically, it acts as an intermediary between a customer, issuing bank, merchant, and acquiring bank. After the response from all the parties involved in an online transaction, the processor sends the approval/rejection back to the gateway.

Thus, a payment processor and gateway are two separate entities that interchange payment data and make the transaction possible. They’re both necessary for online transaction processing.

How an online transaction processing goes from start to finish

  • A consumer who aims to make a purchase fills in their credit card details on the merchant’s checkout page. After this, these details are sent to the acquiring bank.

  • The merchant’s acquirer engages a processor which sends encrypted transaction details to the card network through a gateway.

  • Card network contacts the customer’s issuing bank and the last checks if there are enough funds on the customer’s bank account for withdrawal.

  • The issuer approves or rejects the payment, sending the result back to the processor which in turn redirects the information to the gateway.

  • The consumer is notified about the result.

How to set up payment processing

Whether you’re starting or already running a business, setting up online payment processing is essential. Year after year, cash and paper checks are gradually losing their relevance and being replaced by digital methods, including eChecks, e-wallets and NFC-based solutions. Also, cryptocurrency has become a very popular payment option. Companies that accept Bitcoin, for example, significantly increase their competitiveness in the e-commerce market.

Choice is highly important for the consumer. And this applies not only to the range of goods or services but also to payment options. Let your customers choose exactly how they want to pay - with a regular credit card, PayPal or Bitcoin - and you will see a significant increase in loyalty to your company.

Currently, there are many options for implementing any payment methods in a short time and at no extra cost. The easiest of them is contracting with a reliable and secure payment service provider (PSP). This third-party company offers businesses various services for accepting, processing and managing different payment methods. Usually, when you partner with a PSP, it provides you with its merchant account to process your transactions. In this way, you can avoid the lengthy and troublesome opening of your own merchant account. A PSP fully customises the acceptance of various payments on a business website and supports its customers through cooperation. However, don’t be surprised that payment service providers charge different fees, such as cancellation fees, fixed fees per transaction, and currency conversion rates.

How to choose the best payment processing solution?

The rapidly changing e-commerce market requires merchants to quickly change their approach to sales and adapt to buyers’ preferences. As more consumers worldwide move from paper checks to eChecks, mobile and NFC-based solutions, businesses need to add new payment methods to their websites. Unfortunately, it is not always possible to do this quickly due to a thorough business check carried out before opening a merchant account with an acquirer. However, there’s still a possibility to set up various payment methods on your merchant website in a matter of days with the help of PSP.

Here are top points to consider when choosing a service provider for your business

  • Security

    To avoid fraud and leakage of your customers' debit/credit card data, you should cooperate exclusively with PCI-compliant service providers that take the highest security measures to protect sensitive information.

  • Pricing

    Before signing a contract with a PSP, we highly recommend that you review all the fees that will be charged for the services provided. Also, there are many cost-effective plans for different types and sizes of companies.

  • Flexibility

    When choosing a PSP, flexibility in pricing and adding different payment methods is critical. Also, many providers offer the ability to customise a checkout page according to their client’s preferences.

If you’re in search of a dependable payment processing solution, try Corefy, a payment orchestration platform allowing businesses to accept and process more than 400 payment methods through a single user-friendly platform.

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