Payment Processing contributes more to your day-to-day life than you may think, especially if you are a small-business owner. But... What is payment processing?
If you have swiped your card at a business, then you have used payment processing in your lifetime; it's safe to say majority of us have done it then. Every credit card transaction is not just as simple as swiping a good, waiting for your receipt, and walking out of the business with your goods or service. There are multiple steps that are happening behind closed doors, even more specifically within that little payment processor you swiped your card to make a purchase. When a card swipe takes place for a purchase in a payment processor, a company who has payment processing services and payment gateways sends the information of your card through a bunch of loops and holes to verify validity of funds, make sure the transaction is securely processed, and to transmit the money from the customer to merchants account. More or less, this is how a transaction takes place.
Step By Step Guide of How Payment Processing Works:
Let's go into a more in-depth guide of how payment processing works so you can become more knowledgable of what is taking place when you're making a transaction, no matter if you're a consumer or small-business owner. It is almost statistically impossible to go through life without the use of payment processing, yet so many know so little. We have more than 30 million small businesses in the United States yet only 36% can accept credit card payments when 3/4 of transactions take place with one.
Step 1: Business Owner Or Merchant Chooses a Payment Processing Service To Use
The first step of payment processing is that an individual who is selling a goods or service must someplace to accept purchases for the transactions that take place. All payment processing companies differ in how they offer their services, but most importantly, the price of it. For every transaction that takes place, there is an associated fee the merchant must pay per swipe to accept the transaction. The industry standard per swipe is roughly 2.5% + .10cents. This even gets more in-depth depending on if you're using a debit or credit card, even what brand the card is such as Discover, Visa, Amex, etc. After a program is chosen, the merchant finds what payment processor is best for them and suits there needs so there is someplace for swipes to take place in-store and it begins.
Step 2: Transactions At A Payment Processor
As stated earlier, when a transaction takes place there are a multitude of steps that take place before, during, and after the transaction take places. In the beginning steps of it all, a merchant must have a POS, or a payment processor, to be able to accept and process transactions.
Step 3: During The Transaction
In the midst of the purchase, data is being sent to a payment gateway that is the medium of sending your data to locations to ensure that the data is safely being transmitted by initiator (you) and receiver (the merchant). The data must be sent from your bank and all the way back to the merchant encrypted and secure so no malpractice takes place.
During this step, 4 things take place:
- Banking information is sent
- Payment Processor securely transmits data
- Transaction is approved through being validated
- Purchase is processed and accepted & merchant receives funds
Step 4: Merchant Funds
After a long day of hard work of running their business, the owner has not quite received their funds. A common practice in the payment processing industry is to payout merchants in batches. Essentially, the merchant closes out their transactions for the day and the software officially accounts all the transactions and will automatically pay the merchant there funds the next day. So, a merchant or owner can typically expect to receive their funds a day after they close out their batch.
- Payment processing is a multitude of steps that make sure a consumer can safely purchase a good or service from a merchant through a POS system, or payment processor.
- What Is A Payment Processor
- Associated Fees for Processing A Payment
- What A Payment Processor Does With Your Information
- How A Business Owner or Merchant Gets Paid
As a consumer or owner, knowing a little more of how the technology works will always benefit you more. You don't have to know the ins and outs entirely, but you can educate yourself enough to where you'll be able to use this bit of information to leverage yourself no matter what side of the payment processor you're standing on. If you're an owner this information will allow you to better understand the basics of your pos system and allow you to ask a bit more questions when changing your program or changing payment processor services.
Check out VizyPay's other blogs if you're interested in learning other information such as: