Payment processors make accepting payments possible. Businesses can accept multiple forms of payments with the right processor and merchant accounts. 

Payment processors are the middle-men between a business’s POS and merchant bank. They are also crucial in protecting merchants from fraudulent transactions and safeguarding customer data. 

Payment processing creates a safe environment for cardholders and purchase data to pass through. They can also aid merchants in other tasks such as storing information. 

What Does a Payment Processor Do?

Who is Involved in Payment Processing? 

Processing payments involves multiple parties, including banks and payment gateways. 

  • The issuing bank and cardholder are where customer information originates from. 
  • The merchant receives cardholder information and forwards it to their payment processor and their payment gateway
  • The payment process will then transfer a purchase’s funds to the merchant’s acquiring bank

What are the Steps in Payment Processing?

The three main stages of payment processing are authorization, batching and clearing, and funding. 

However, the first requirement for a merchant to start accepting payments is to set up a merchant account with a payment processor. This establishes a partnership with an acquiring bank so that the merchant can receive their funds. 

Authorization

The initial purchase in which a cardholder gives a merchant information is where authorization begins. The payment method and terminal determines what type of authorization takes place. 

The most common type of transaction is credit card payments. Merchants can receive credit card information through physical POS terminals or online. Authorization can be chip-and-PIN or biometric. 

When a transaction happens, the acquirer (merchant bank) will connect with the issuer (customer bank) to determine if the cardholder has the sufficient funds to complete the transaction. This is made possible by a payment gateway, which some payment processors provide as well as merchant accounts. 

The POS will receive authorization confirmation from the issuer to conclude the purchase. With a physical terminal, this may look like an “approved” message that pops up. 

Batching and Clearing

Batching refers to batches of authorized sales. Businesses’ POS sends these batches to their acquiring bank. Along with the batches, businesses will send in a request for payment. This request will include all of the different issuing banks that cardholders paid with. 

Issuing banks will deduct interchange fees accordingly and then forward proceeds to the acquiring bank. 

Funding

After batching and clearing comes funding. The merchant account receives the remaining amount after fees. These fees include those for interchange and any charged by the acquiring bank. 

Types of Payment Processing

Credit Card Processing 

Credit card processing is the most common form of payment processing. This allows merchants to accept payments easily and quickly. 

Interchange fees for credit card processing are higher than debit card and eCheck processing. However, accepting credit cards opens merchants up to take payments from a larger audience than if they only accepted debit cards and eChecks. 

Fees can vary depending on the type of credit card. The downside of credit card payment processing is that these transactions are more vulnerable to fraud and hacking. 

Debit Card Processing 

Debit card processing is just like credit card processing with slight differences. Debit cards have lower interchange fees and cost merchants less to process. 

ACH and eCheck Processing 

ACH and eCheck payment processing were the primary forms of accepting payments prior to debit and credit cards. They are electronically processed like cards are, but cost less to do so. However, ACH and eCHeck processing does take longer to clear. 

High Risk Merchant Processing 

High risk merchants such as those Revitpay works with may need additional security and services. Some businesses aren’t able to process credit or debit cards due to the nature of their business or their history. 

High risk payment processors provide merchant accounts that can accommodate businesses who are at higher risk for chargebacks. 

What Other Services Do Payment Processors Offer?

Payment Gateway 

Payment gateways are how issuing banks and acquiring banks communicate to complete transactions. They let the merchant’s POS know if a transaction is authorized 

Most payment processors provide their merchants access to payment gateways. This gives businesses easy access to simple payment processing. 

Security Services

Payment processors are key players in preventing fraud and security breaches for their clients’ transactions. They can provide tools such as 3D secure to protect businesses.

Revitpay is a high risk payment processor that can provide the best in security tools and easy payment processing. Contact us today to find out how we can assist you.