What is a payment processor www.deekpay.com

What is a payment processor

Payment ProcessorManage the credit card transaction process by acting as an intermediary between the merchant and the relevant financial institution. Payment processors can authorise credit card transactions and ensure that merchants receive payments on time by facilitating the transfer of funds. Some payment processing services offer card acceptance equipment, security solutions, PCI compliance assistance, customer support and other value-added payment processing services.

Unlike payment processors, thePayment Gatewayis a cryptographic application that authorises credit card or direct payment processing for online sales of other cardless transactions.

Recommended Reading:Difference between payment gateway and payment processor

How payment processors work

When a business accepts card payments, the payment processor works in the background to complete these transactions and transfer funds from the customer's card account to the merchant's account. The process is shown below:

Customers provide merchants with their card information. This can be done at a shop terminal, on an online payment page, or through other methods. The information is submitted through a payment gateway, which is a payment processing portal sometimes bundled with a payment processing service. The payment gateway sends the information to the payment processor, which initiates the transaction by sending the information to the card network (e.g. Mastercard or Visa) for approval. The card network informs the payment processor whether the payment request has been approved. The merchant completes the transaction with the customer. Once the transaction is complete, the payment processor notifies the bank that issued the customer's card (the issuing bank) to send the funds to the merchant's bank (the acquiring bank). The merchant can receive funds from the sale. This may happen immediately or within a few business days, depending on the payment provider and the type of account to which the funds are sent.

How to choose a payment processor

While the right payment processor can help a merchant's business thrive, the wrong payment processor can negatively impact a merchant's collection acceptance rate and hinder their growth. Here are important factors to consider when choosing a payment processor:

Compatibility: Choose a processor that is compatible with the way the merchant's business operates. Some of these factors may depend on preference and some may depend on necessity. For example, if the merchant trades internationally, the merchant should choose a payment processor that can support expansion into new markets by handling multiple currencies and helping the merchant understand local regulations. PCI Compliance: PCI DSS requires businesses to meet a set of security standards to ensure their systems are protected from data breaches and criminal activity. Any business that accepts card payments must ensure that card data is securely stored, transmitted and processed. Reputable payment processors can integrate compliance standards into their systems, making it easy for merchants to meet these requirements. A merchant's payment processor should provide information about its PCI compliance on its website. Fraud: Payment processors with integrated fraud detection solutions are a huge benefit to merchants. Industry: A merchant's choice of processor may be limited by the industry in which the merchant operates. For most industries this is not an issue, but if the nature of the merchant's business exposes the merchant to a higher risk of chargebacks (travel, telemarketing) fraudulent transactions (gambling, real estate) or if the merchant is heavily regulated (firearms, CBD), the merchant may have to find payment processors that correspond to their specialisation‍. Pricing: Pricing for payment processors can be complex, as fees and structures vary widely.

Payment processor and transaction fees

Merchants must pay a fee for each transaction, which includes the cost of maintaining critical infrastructure and processing payments. The total cost of each transaction consists of a number of fees charged by the parties involved in processing payments. The main fees are:

Transaction fees: Merchants pay an interchange fee to the issuing bank for each transaction. They bear the costs and risks associated with processing the payment. Card networks set interchange rates, which may vary by network, card used and merchant category. Acquirer Fees: Merchant banks (also known as acquiring banks) also charge fees for processing transactions. Processor Fee: A processor fee is paid to compensate the payment processor for the services it provides. The fee usually consists of a percentage of the purchase amount plus a fixed rate.

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