Payment Processing 101: Payment Processor, Payment Gateway & Merchant Account

Payment Processing 101

Advanced features such as digital receipts with integrated feedback forms, card splitting costs, as well as inventory management for tracking stock are all free. Most gateways offer discounts based on the volume of sales you’re getting. However, it’s worth noting that these transactions can cost you more than payments in your own country. Must be compliant with the Payment Card Industry Data Security Standard .

  • For instance, while Visa and Mastercard are widely accepted all over the world, it’s a very different story for American Express and Discover.
  • Every merchant that accepts credit cards is required to be PCI compliant.
  • The issuer is also responsible for card security and compensates customers for losses due to fraud.
  • If done by the issuing bank, it could take several business days to pay the funds.
  • To be more exact, there’s actually a credit card network that serves as an intermediary between the payment processor and the issuing bank.
  • They may also provide the technology and hardware which enables the merchant to process the transaction.
  • The exact differences between payment processors, payment gateways and merchant accounts are not that clear at first.

Every merchant that accepts credit cards is required to be PCI compliant. There are a number of factors that influence what is involved in achieving and maintaining compliance. Merchants are assigned a PCI Level based on their transaction volume. Do you feel like you’re trying to learn a different language? Are you missing opportunities to save money, create happy customers and streamline your business?

Secure Payment Processing 101

Apyd Collect is the world’s most comprehensive global payments platform. Grow globally by offering the right local payment methods with a single, simple integration. Merchants must complete a Self Assessment Questionnaire based on the extent to which they handle, processes and/or store cardholder data. If you don’t touch, process or store card data or serve any card collection forms – your scope and PCI responsibilities are significantly reduced. A general rule of thumb if you’re unsure which is which, is if they charge you a monthly fee is probably a merchant account, and if they don’t it’s likely to be a PSP account.

Payment Processing 101

Payment processing is probably the most intimidating element of the whole “selling online” puzzle when you’re just getting started. Shelley is a Manager, Content Marketing at BigCommerce, where she specializes in content strategy, research and writing to educate brands on the ecommerce industry.

Name: Cardholder

Merchant accounts are your best bet if you are processing any individual transactions larger than $300, or if you plan on processing more than $10,000/per month in transactions. At these usage levels, a merchant account will give you the best rates. Merchants want to make sure their payment application optimizes this information to qualify for the lowest interchange rates. Traditionally this had the biggest impact on B2B companies doing large transactions, but it’s now not uncommon for these types of transactions to be done for smaller amounts with company-owned cards.

Issuing banks front the funds to merchant accounts when someone pays with a credit card. This carries a degree of risk – If a cardholder defaults the issuing bank takes part of the hit, which is why they charge a per-transaction fee. In order to accept credit and debit card payments from online customers, you’ll need to partner with some key players. As a business owner, it’s likely you’ll need a merchant bank that accepts payments on your behalf and deposits them into a merchant account they provide. To standardize the industry, this group unveiled the PCI DSS , applicable to all businesses and organizations that accept credit card payments. This new set of credit card processing rules and regulations meant more protection for both the merchant and cardholder, with surveillance from the card brands.


In such a scenario , you’re usually going to lose a sizable amount of money to different conversion fees when you try to withdraw funds. Just to make it clear, you have to pay both the fixed fee and the percentage of the transaction. If you have plans to sell to customers overseas then it’s worthwhile to consider a gateway that supports and accepts foreign currencies. Payment gateways are easily integrated with popular eCommerce platforms such as Shopify, WooCommerce, BigCommerce, and Magento. With Klarna you can offer no-liability financing options at checkout, including build-in fraud protection.

These are the individual organizations that oversee the payment card industry. Card brands are responsible for managing the payment networks in which all transaction data runs through. They also develop the rules and regulations required to secure data processing. By using a Mobile SDK , secure payment acceptance can be integrated into any mobile application. This solution can also allow for the integration of mobile wallet payment acceptance, like Apple Pay and Google Pay.

Prior to joining BigCommerce, she worked on marketing teams spanning various industries from eLearning to millennial and Gen Z research. Outside of work, she loves exploring all things Texas BBQ and craft beer with her husband and two dogs. Local Card SchemesMany countries are home to local card schemes that are preferred by regional consumers, these include BC Card in South Korea, Rupay in India, and JCB in Singapore. Electronic payments are quickly displacing cash and cheques as the preferred way to pay.

Do You Need an Ecommerce Merchant Account?

Research your local market before deciding on a merchant account if you really need one – as I said, in many cases, you don’t – you can have your payment processor handle all the work. Payment processors are the financial institutions that work in the background to provide all the payment processing services used by an online merchant. These companies usually have partnerships with other companies that directly deal with consumers Payment Processing 101 or merchants. There are a few other options you can give your customers for paying online during the checkout process, such as ACH and invoicing. However, as you can see from the chart below, credit cards, alternative payments and direct debit are the ones most people prefer. By giving merchants access to cards and alternative payment methods in 100+ countries, Rapyd provides a comprehensive solution to grow sales globally.

Consumer behavior is evolving and fewer people are carrying cash every single day. Below is a payment processing overview that outlines all the key players involved in a standard card-based transaction. As you can see, these are the “usual suspects” all over again. These companies do offer the whole package – everything from a payment gateway, to payment processor, to full payment processing system. By picking either of them, you basically get all of your store’s payment processing needs taken care of. When a transaction clears at the payment processor level, the funds then can be deposited into the merchant account.

Whatever processing solution you choose, make sure it enables online transactions that are easy for both you and your customers. Typically though, companies will charge a percentage, as well as a fixed fee per transaction. However, some may charge a monthly fee for a subscription instead of transaction fees. There are also extra fees you might be required to pay for things like chargebacks, disputes and international payments.

Payment Processing – Hardware & Software

These payments are encrypted, just like EMV payments, but are processed much faster than magnetic stripe or EMV transactions. This fee goes to your payment processor for using their product, and can also be charged per transaction or on a monthly basis. Once the processor has the approval or denial, they send the information to the payment gateway. Ecommerce Platforms is a review site that shows the good, great, bad, and ugly of online store building software.

Instead of using your traditional reviews to promote paid businesses, PP101 believes in merit-based reviews. And if it doesn’t deliver as per expectations, you can move on… There is really no real risk here. Payment Processing 101 is your go-to resource for reviews, opinions, and latest updates in the payment processing world. Payment Processing 101 is a series of articles written by Chad Corbitt, which explains how does payment processing work. Making sure that your company is following the guidelines set forth by the PCI SSC can help protect your business from these techniques. Payment security solutions backed by the PCI SSC, like point-to-point encryption and tokenization can actually reduce the scope of your compliance responsibility. Criminals have become increasingly cunning when it comes to gaining access to cardholder information, whether it is in the e-commerce or card-present environments.

Small Business Payments Global solutions to reduce fees and grow salesHosted Checkout Create branded local checkout experiences worldwidePayment Links Copy and paste to accept payments. Job – Cardholders are consumers with credit cards used to purchase goods and services. For most businesses this question doesn’t even come up, but we have seen it for some smaller mom & pop type shops. Generally the issue raised is the comparative cost and complexity of processing credit and debit transactions. So we’re going to break down this complicated subject to make it more accessible to small business owners. It’s interesting to notice that most of the roles mentioned in this process seem self-explanatory.

Payment Processing 101

The acquirer collects the fees all at once, in a monthly statement. Never has there been a more comprehensive guide to the often confusing world of payments. Cash and checks are dying payment forms, and the landscape is shifting so that credit, debit, and other alternative forms of payments are taking the stage – don’t get left behind. Whether you’re new to the game or are a seasoned merchant, this eBook will be your go-to payments resource.

All of these sales, known as a batch, are stored in the merchant’s point of sale or POS. Honestly, I didn’t have high hopes when I first heard of Payment Processing 101.

Usually, the first three fees are all added together and quoted as a single rate, while the transaction fee is quoted separately (e.g., 2.9% + $0.30). It’s also worth noting that Payline offers subscription billing capabilities for free. So, of course, you can leverage when it comes to recurrent charges for memberships, services, or products. The great thing about selling online is that you don’t have to be present in front of your computer when sales take place. This all works basically on autopilot – but you know all that already. While I’m at it, it’s also good to keep in mind that in some setups, all three elements are hidden under one umbrella company. In other words, the store owner doesn’t usually have to deal with three separate entities individually, but can instead work with a single company that acts as all three.

They are also responsible for paying the card brands and the issuing bank their share of the interchange fees. A payment gateway connects the payment technology (terminals, shopping carts, etc.) and the card processing networks.

Using hosted fields is another solution to keep your customer on your checkout page while providing an extra layer of security for their credit card information. Merchants must be aware that one tool alone cannot protect their businesses. Because payment security is such an emotive subject, make sure you pick the best payment partner for your business. Customer service that is accessible when needed is critical for your company’s success. This is the stage where the merchant actually receives payment into their bank account with another funding request via ACH from the acquiring bank to the merchant bank.

From there, they can be moved to the main bank account of your business. The payment gateway takes care of sending the transaction request to the proper payment processor or credit card company issuer. The customer’s credit card issuing bank either accepts or rejects the payment request. The payment processor checks with the credit card network to ensure that the customer has the funds to cover the purchase. As a small business owner, you know that it’s important to accept as many forms of payment as possible.

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