With 160 million credit and debit card holders in the US, payment processing is a vital operation for any business. While consumers use their cards to pay for just about everything, most people aren’t—and shouldn’t be—worried about what goes on behind the scenes. However, as a business owner, understanding the basics of payment processing can help you stay ahead of the game.
In an industry that historically leverages its confusing nature to increase merchant costs, we break down all the ins and outs of payment processing to keep you informed. Backed by the Beyond Promises, we’re committed to transparency—that’s why we’re outlining everything you need to know about the complex world of payment processing.
What is Payment Processing?
While credit card transactions only take a matter of seconds, a lot happens in that short time span. Payment processing is a cycle of computer operations that process, authorize, and accept or decline card transactions on behalf of the merchant. The process begins when a customer presents a credit or debit card and ends when the money is deposited in the merchant’s bank account.
What Does a Payment Processor Do?
Payment processors help you get paid in a timely manner by authorizing your transactions and facilitating the transfer of funds. The first step in the computer process, the authorization of the transaction, entails confirming whether a customer’s credit card is valid and if it has sufficient credit to purchase the goods or services. After approval, a payment processor works with card brands (such as Visa, MasterCard, American Express and Discover) to settle the transaction, and then with the acquiring bank to make deposits into the merchant’s bank account.
Components of Payment Processing
Working with a processor that handles all your payment needs is essential to the ease and security of your transactions. The more integrated your solutions are, the more seamless your back-office processes are, and the more positive the experience for your customers. Aside from managing your transactions, some key features your payment processor can provide are the payment devices, the payment software, the payment gateway (the direct connection to the authorization network), and finally ACH transfers (the movement of funds from the cardholder’s account to your business’s bank account).
One of the most important aspects of payment processing is security. Processers are held to a certain set of standards and regulations organized by banks and credit associations. One distinguished regulating forum is the Payment Card Industry Security Standards Council (PCI-SSC). PCI-SSC monitors and validates security solutions and helps keep processors compliant and updated on security measures. Anti-fraud measures have increasingly become a priority for all parties—the merchant, the customer and the payment processor—as the US accounts for nearly half of worldwide credit card fraud.
There are three key security measures all payment processors should be utilizing: encryption, tokenization, and EMV technology. With every transaction, processors use encryption to hide the meaning of data within a message so that only the intended recipient can read it. Tokenization refers to the replacement of sensitive data with a unique identifier, reducing the chance of data being compromised. One of the most recent security measures is EMV chip technology. In October 2015, card brands began shifting the liability of fraud to business owners who do not offer EMV technology. Avoid losing the trust of your customers by leveraging a payment processor who follows these important security measures.
Where do Business Owners Come in?
Payment processing is confusing, period. But, it should be painless for businesses, as well as the customers they serve. The best payment processing solutions keep everything running simply and smoothly, with minimal involvement from the business owner. When you utilize the right payments solution to handle the complicated processing details, you can focus on running your business.
Behind every purchase, there is a dedicated team of payment professionals working to ensure transactions are efficient and secure. Without your payment processor, not only would there be a gap between your business, credit card companies, and the bank where your funds are deposited, but both you and your customers could be at risk of identity theft and fraud.
Your payment processor provides secure technology, helping every transaction to be seamless and secure. If you’re not happy with your current payment processor, learn more about Beyond Payments.