Do you need to take credit card payments for your business but need help figuring out how to get started? This Payment Processing 101 blog offers a beginner’s level education for leaders of small businesses. After all, efficient and secure payment processing is crucial, whether running a small retail shop or a large e-commerce platform.
By reading this blog, you’ll learn the basic vocabulary of payment processing, how it works, and how to streamline transactions while improving your bottom line. Learning how to take credit and debit cards has never been so easy.
Taking Debit and Credit Card Payments – A Summary
- Payment processing is a system that enables financial transactions. It is commonly employed by a merchant to handle customer transactions from various channels such as credit cards and debit cards.
- Understanding the payment processing system enables business owners to select a secure and efficient merchant service provider.
- Look for a merchant service provider that emphasizes data security, optimizes for mobile payments, allows for multiple payment options, and offers helpful reporting tools.
What Is Payment Processing?
Payment processing refers to the actions required to complete a financial transaction between a customer and a merchant. Take a moment to learn the industry’s basic vocabulary:
- Customer: The individual making the purchase. The customer may be in person, online, or on the phone.
- Merchant: The business selling goods or services.
- Payment Gateway: The service that securely transmits payment information from the customer to the payment processor.
- Payment Processor: The company that handles the transaction, transferring funds from the customer’s bank to the merchant’s bank.
- Issuing Bank: The bank that issued the customer’s credit or debit card.
- Acquiring Bank: The merchant’s bank that receives the funds from the transaction.
How Payment Processing Works
How do debit and credit card transactions work? Here’s a primer about debit and credit card processing.
- Authorization: The customer initiates a transaction by providing payment details, usually through a credit or debit card. The payment gateway encrypts this information and sends it to the payment processor for authorization.
- Authentication: The payment processor forwards the transaction details to the issuing bank to verify the customer’s credentials and ensure sufficient funds or credit availability. The issuing bank sends an approval or decline message to the payment processor.
- Clearing: If the transaction is approved, the payment processor forwards the authorization to the merchant, allowing them to complete the sale. The payment gateway then encrypts and transmits the payment details to the acquiring bank.
- Settlement: The acquiring bank requests the funds from the issuing bank. Once the issuing bank transfers the funds, they are deposited into the merchant’s account minus any transaction fees.
- Funding: Finally, the merchant receives the funds, typically within one to three business days, depending on the payment processor and banking institutions involved.
Both in-person and online payment processing work the same way.
Key Components of Payment Processing
If you want to accept credit card payments at your place of business, you need to be aware of these key components of payment processing.
Payment gateways
Payment gateways act as the intermediary between the customer and the merchant. They securely transmit payment information and ensure data encryption to protect sensitive information from fraud or theft.
Payment processors
Payment processors are responsible for handling the transaction, from authorization to settlement. They work behind the scenes to ensure funds are transferred securely and efficiently.
Merchant accounts
A merchant account is a type of bank account that allows businesses to accept payments via credit or debit cards. It’s essential for managing funds received from card transactions and typically involves debit and credit card processing fees for each transaction.
Point of Sale (POS) systems
POS systems are the hardware and software merchants use to complete sales transactions. Modern POS systems often integrate with payment gateways and processors to streamline the payment process, offering features like inventory management, sales reporting, and customer relationship management.
Best Practices for Seamless Payment Processing
You may already have a relationship with a payment processing company, but you want to streamline your ability to process payments. Here are some best practices to consider.
Ensure security compliance.
Choose a payment processing company that adheres to the Payment Card Industry Data Security Standard (PCI DSS). This will protect your customer’s data and prevent fraud.
Optimize for mobile payments.
Ensure your payment processing system supports mobile transactions and offers a seamless experience across devices.
Offer multiple payment options.
Cater to customer preferences by accepting various payment methods, including credit/debit cards and digital wallets.
Monitor transactions.
Regularly review transaction reports to identify any discrepancies or fraudulent activities. Use analytics to gain insights into customer behavior and optimize your payment process.
Choose the right payment processor.
Select a payment processor that aligns with your business needs, considering factors like transaction fees, supported payment methods, and integration capabilities. Choose CardConnect as your merchant service provider.
CardConnect is less expensive than Stripe or PayPal. Here’s why you need to use CardConnect for your in-person and online payments:
- Lowest credit card processing fees
- 98% approval on applications from businesses
- Free point-of-sale system hardware
In addition to these benefits, you will be assigned a dedicated account manager and can start accepting credit card payments TODAY. Connect with a member of our team to learn more about how payment processing works and why Cardconnnect is the secure choice.
