Payment Processing And Its Fundamentals
In a world full of e-commerce and online trading, payment processing has become seamless. However, what may seem like a single swipe to customers is just the tip of the iceberg.
As a business owner, it is imperative to understand the steps involved in making a payment. If you are worried about the intricacies of it all, then do not fret!
In this blog, we will break it all down for you, step by step. Read on to find out more!
Payment Processing Steps
Despite happening in the blink of an eye, payment processing involves several back-end operations. In essence, four operations are involved. Let's have a look at them to understand what payment processing is.
1. Customer's Point of Purchase (POP)
Let's say a customer comes to your retail store, adds products to her cart, then arrives at the payment counter; you present the customer with the payment options. The customer chose to pay via a card and entered their card credentials. This activity is called the point of purchase for the customer.
2. Payment Gateway
The payment gateway technology also ensures confidentiality and security. As your customer has entered their information, the payment gateways bridge your customer's account and your account. An online payment gateway informs through messages when the payment is accepted.
3. Information Transfer
The information transfer is essential to a cashless transaction, which the payment processor ensures. While the payment gateway acts as a bridge between the customer and the merchant account, the payment processors deliver the information between channels which are banks of both customer and business.
4. Verification & Monetary Transfer
Payment processors also undertake the Monterey transfer between the customer and the business bank. Before the money transfer, payment processors verify the payment security.
Lastly, after the verification, the payment processing platform or company enables money transfer into the merchant account. This is the final step of a transfer.
How Do Businesses Perform Payment Processing?
Payment processing is responsible for navigating the transfer of funds from the customer to a merchant account. There are a few critical operations accountable for payment processing.
The payment processor seeks transaction approvals; the acceptance and denial of a transaction depend on payment processing. For instance, if the transaction is dangerous, it will immediately be blocked.
Payment processing services are charged, and there are mainly three ways in which businesses are charged for these services. These are as follows;
The subscription-based payment processing service often charges businesses monthly fees. Additional fees are also inclusive and are often charged per transaction; this charge per transaction is not the same and varies from company to firm.
This doesn't mean that businesses with high sales volumes end up paying more, but they are the ones who benefit. Companies with high sales volume get minimal fees per transaction, so they pay less.
The interchange-plus fee is when a payment processing charges, interchange fees, and an additions fee with a flat rate. An example would be when a payment processing service charges 1.5% interchange fees per transaction with an additional flat rate of 0.5%.
This may seem minimal, but the thing is, as the monetary value of the transaction increases, the fees also increase. At this point, businesses are disadvantaged.
3. Flat Rate Pricing
A flat rate pricing is self-explanatory; there is a fixed percentage of fees per transaction. Mostly this percentage is higher than the interchange rate.
The flat rates are mainly higher as they cover the interchange charges and a portion of the profit the payment processing service provider could earn. Additional fees are also likely to be added for enhanced service provision.
This could mean that a credit card processing company would offer the service of payment gateways with additional charges. Therefore, it is recommended that business owners should opt for a payment processing service that comes with a payment gateway.
Merchant Account Vs Business Account
When we talk about payment processing, we often talk about the business owner account as a merchant account, not a business account; However, both are synonymous with sound, and there are significant differences between merchant and business accounts.
A business account is where the money is stored solely for capital and revenue expenditure, whereas a merchant account is where the customer's payment lands. We often refer to the merchant account as receiving customer payments, not the business account.
If you are still struggling with a business account, here is an example; the business account is used to make an immediate withdrawal for asset acquisitions or payment for business owing. However, the business account is mainly used for payments and daily expenditures like mortgage or rental payments.
Merchant accounts are also the ones that are connected to the payment processors and customers' banking channels so that payment can be received. Adding to this, the merchant account can be integrated with the Point of Sales (POS). This ensures that the payment is received immediately and can also be trackable.
Factors to Look For in A Payment Processor
Businesses should be very considerate when choosing the payment processor. Remember, if anything wrong happens, such as data breaches, the adverse repercussions of it would affect both business and customers.
Therefore, you should be careful about a few things while choosing the payment processor. The following are the factors that businesses should look for.
1. Customer Service
The customer service of the payment processing company should be excellent. This is important because businesses often have to consult about a few things. A payment processing company should be able to help with elements like technical and financial queries.
If the payment processor's customer support service is excellent, they will guide, educate, and make businesses better aware of everything. This is an integral performance aspect.
2. Fraud Detection
Fraud detection of the payment processor should be top-notch. Additionally, their risk management for any malicious activity should be stunning. The damage that occurs due to data breaches can be terrifying for companies.
The payment processing service provider your business chooses should be competent in identifying any malicious and illegitimate activity; it should also block off such activity, so businesses and customers are saved from damages.
The payment processing software should not only treat your business as a client but instead as a partner. This means mutual reliability and payment processing platforms should participate in business growth.
The payment processing software should ensure super ease in transactions and ultimate flexibility. A business's smooth payment and transaction process will boost its customer experience.
Businesses should only choose proactive payment processors and ensure the transaction activity is as quick as possible. Along with the pricing factor, these are some of the few essential aspects on which a payment processor should be determined.
Remember, the payment processing you choose should be a long-term partner of your business. Otherwise, switching a service provider, mainly in the case of payment processing, would be a huge hassle down the road.
Security Practices For Payment Processing
We have stressed data security for businesses and customers when using modes of cashless transactions like online payments, debit card payments, and credit card payments. But we are now about to tell you some practices to exhibit to ensure the utmost security when processing payment.
1. Set Stronger Passwords
Businesses that are more into payment processing should beware of online fraudsters and hackers. The blockage of such malicious crimes can only be done if companies have stronger passwords which are difficult to predict.
Short passwords can be easily conquered; what happens next are data breaches and scams. Thereby businesses and customers could ensure the security of their financial credentials if they set complex passwords.
Businesses and customers are often recommended to perform data encryption of the utmost level for their financial credentials. As we know, in payment processing, data transfer occurs while there are payment gateways, but the extra security is still beneficial for both customers and businesses.
Both sides should encrypt their data. This encryption ensures that there is no unauthorized access to the data of both entities. The best encryption can be done with Secure Socket Layer (SSL) and Transport Layer Security (TLS).
3. Monitoring Suspicious Activities
Businesses should also be keen that the payment gateway services they are availing are continuously tracking suspicious activities. As the old saying goes, "prevention is better than cure"; the payment gateway should also eye on any transactions that seem to be highly risky.
Payment Processing Software
Payment processing software is increasingly becoming prevalent. Most businesses use a SaaS payment processor to collect online payments, credit card transactions, and debit card transactions.
The leading reason payment processing software has risen to fame is that it is convenient for collecting cards and electronic payments. Payment processing software also offers excellent services that make bank transfers seamless.
Let's have a look at these services and what they offer!
1. Multiple Payment Modes
The payment processing software allows your online shoppers to choose the payment mode of their choice. This brings convenience to your customers; the more options you provide, the better their shopping experience gets, and hence customer retention will increase.
2. Invoice Management
The payment processing software also provides the services of invoicing to businesses. As your customers shop and pay, you no longer have to worry about creating receipts.
This all happens through an invoice management software; as you collect payments, automated invoices are generated, and all your sales are tracked in sales history.
3. Reports & Dashboarding
The payment processing software provides businesses with in-depth information. This information would include A-Z, such as the hot selling product, seasonal sales, financial performance, and more on shoppers' behaviors.
This information helps businesses in data-driven decision-making, which leads to the overall performance enhancement of the company. The interactive dashboards and accurate reports help enterprises to carry out vital analytical operations.
4. Banking Connectivity
If you opt for a credible payment processing software, then it will provide you with multiple bank integrations. This means payments can be collected from multiple banks, a win-win situation for you and your customers. Also, significant bank connectivity could help you broaden your customer base.
5. Support Multiple Currencies
The payment processing software often features multi-currency support. With this feature, you can convert transactions in different currencies to meet the needs of your international customers and other worldwide businesses.
6. Secure Payment Processing
With payment processing software, you can make sure that your transactions are processed securely through encryption and tokenization. This software is in line with Payment Card Industry Data Security Standard) compliance and regulatory requirements.
Payment processing has become increasingly important as more businesses transition to digital commerce. Robust payment processing enables faster, more secure, and more convenient transactions for customers and merchants alike.
ZarMoney provides you with a credible and secure payment processing software that is tailored to your needs. We help to streamline your payment workflows and feature multiple payment methods for your convenience. Explore our services today to get your payments processed in no time!