Payment processing is an umbrella term that describes how you, your customers and your respective banks handle transactions. If you accept cash or checks, the process is fairly straightforward. If you plan on accepting credit cards, there are several different payment processing options worth exploring.
Option 1: POS Readers
If you operate a brick-and-mortar store, you’ll typically need a merchant account and POS terminal to get started.
• Pros: The setup is very simple, and most customers are already familiar with the swipe-and-sign ritual.
• Cons: You’re limited to customers who visit your business in person, and you must be on-site to manually manage each sale.
Option 2: Virtual Terminals
If you sell via mail or phone, you’ll need a merchant account and a virtual terminal. This setup allows you to key users’ credit card information into an online payment interface without their being present.
• Pros: This approach extends your reach since you can sell to anyone around the globe, not just those in your zip code.
• Cons: You must be awake to manually process transactions. Furthermore, you must convince customers to hand over their payment data directly to you.
Option 3: Payment Gateways
If you sell online, you’ll need a merchant account, a payment gateway and a shopping cart. This is the most involved setup, but it’s also one of the most popular.
• With online payment processing, you enjoy global reach and can continue generating sales around the clock (even when you’re asleep).
• Customers never have to share their payment data directly with you — the merchant. They submit their credit card information through your website and payment gateway.
Another advantage of online payment processing: Transactions happen in mere seconds.
Below is a brief breakdown of how a typical online credit card sale happens.
1. The Transaction Trigger
After filling the shopping cart, a hypothetical customer keys in credit card information and clicks the “buy” button — the transaction has been “triggered.”
2. The Payment Gateway
Your website captures this information and passes it on to your processor through a secure payment gateway.
3. The Card-Issuing Bank
Your payment processor connects with the customer’s card-issuing bank to verify the legitimacy of the transaction.
4. The Sale Authorization
If the transaction is rejected, notifications of the incomplete sale are sent to all relevant parties. If the transaction is legitimate, the bank authorizes the sale and deducts the corresponding amount from the customer’s account.
5. The Notification of Approval
The bank notifies the customer and your payment processor that the sale has been authorized. Your payment processor forwards this notification to you — the merchant.
6. The Final Payment Credit
All of the above happens in the blink of an eye, even if the customer is on the other side of the globe — but it takes a few days for the “credit” to register in your own bank account. Once it does, the sale is officially complete.
Have Additional Questions about Payment Processing?
The process is a simplified representation of what happens behind the scenes every time a new online sale enters your payment environment. If you understand the basic nuts and bolts of this process, you’ll be miles ahead of most other merchants. You’ll also be better equipped to shop for a payment processing solution that is uniquely suited to your business.
If you’d like to delve a little deeper — or if you have questions — be sure to check out the accompanying infographic (which can be downloaded and saved for future reference).
This infographic was created by Performance Card Service
Author bio: Matt Wollersheim is Vice President of Sales at Performance Card Service, where his focus is on general marketing, client relations and development of new processing channels. Performance Card Services provides high-risk credit card processing solutions to high-risk merchant accounts.