What Is a Payment Processor?

What Is a Payment Processor?

payment processor

A payment processor plays an important part in the payment process, as it handles transactions. But what exactly is a payment processor, and what are its main responsibilities?

The entire payment process takes seconds, even though many things are happening and many players are behind the scenes.

What is a payment processor?

A payment processor, also known as a payment service provider, is a company or financial institution responsible for handling card transactions. Such a company gets credit or debit card information and transfers it to the acquirer and the customer’s bank. If the customer’s account contains sufficient funds, the transaction goes through.

The payment processor is also responsible for checking whether the customer’s data is correct and keeping the process secure by analyzing fraud possibilities. We can say that a payment processor is a kind of mediator between the bank and the merchant. So, its main role is to verify with the customer card’s issuing bank or card association whether the card details are correct and to perform anti-fraud measures to safeguard the transaction.

Moreover, when a customer disputes a transaction, a payment processor should help you resolve it (a service that may come with an extra fee). Another thing is that payment processing companies can help businesses get a merchant account.

Keep in mind that payment processors charge a fee for each transaction. A wide range of fees are associated with payment processing, such as transaction fees or chargeback fees, but some processors may charge extra fees (e.g., monthly fees) that can be simply avoided. That’s why it’s important to read the terms of service carefully. However, don’t make pricing the key criterion for selection – a solution that may appear cheaper at the beginning may turn out to be much more expensive.

What parties are involved in payment processing?

A payment processor works behind the scenes and manages the transactions between customers and a merchant. But several other players are also involved in the overall process.

While the payment gateway (software integrated into the merchant’s website) is responsible for the transfer, the payment processor’s role is to authenticate and secure the transaction.

As mentioned, a payment processor verifies whether the payment data entered by the customer is correct. Once they receive confirmation that the customer’s card has been verified, this information is transferred to the merchant via the payment gateway. When the data is correct, the payment is completed; if not, the transaction is declined and a merchant receives a decline code, so they know the reason for the cancellation. The entire operation usually takes a few seconds.

Here are the players involved in a payment transaction:

the customer who enters the card data;
the merchant;
the payment processor;
the payment gateway (typically operated by a payment service provider);
the customer’s bank or credit card company; and
the merchant’s bank (an acquirer).

How can I start working with a payment processor?

Before you choose the payment processor you’d like to work with, consider several things to ensure the processor will meet your business needs.

1. Accepted business models

It’s no surprise that this is first on the list. It’s highly recommended that you ensure the credit card processor you want to work with offers solutions for the industries your company operates in before you apply for a merchant account. The same goes for the countries and cards your payment processor accepts. Look for a list of supported business models and countries on the payment processor’s website. Reliable companies usually have such a list on their sites.

2. Technology

Search for a payment processor that offers APIs, so you can have full control over the setup and payment process. Make sure the payment processor provides the latest technology, know-how, and processes for fast onboarding and painless payment flow, without downtimes and surprises. You might also be interested in multiple accounts, so ask the processor whether they provide that option.

Make sure that the payment processor makes it possible to implement various scenarios that align with your business needs. This is critical for complex business models. Ask whether it’s possible to customize every element of the payment form and make sure you’ll get all the features you need to offer your customers a flawless experience.

Bear in mind that even though it’s technically possible to work with different providers to obtain a merchant account, payment gateway, and payment processing, it’s better to work with a single provider that offers an all-in-one solution. It will help you avoid a lot of payment processing difficulties.

3. Security

Search for a payment processing provider that adheres to strict security rules (ask for PCI compliance level 1) and provides a set of anti-fraud tools that will effectively protect your business from fraudsters. It’s better to choose a payment processor that offers a multilayered approach to security, as this will help reduce suspicious activity and deliver a decent chargeback prevention system.

4. Expertise

Do research on the company and its leaders. Search for their expertise and market know-how, as well as information about how long the payment processor has been around. Focus on how they’re positioned in the market and read online reviews to ensure they provide reliable service.

5. Transparent pricing

You should know the pricing before you sign a contract with a payment processor. Make sure you understand the fee structure and that there are no hidden or extra fees or rates. The pricing structure should be easily found on the payment processor’s website, but if there’s a lack of detail, search for precise information about potential added costs. Ask the processor directly.

6. Customer support

Your payment processor should offer responsive support that will help you quickly resolve any payment issues. It’s about your customers’ money and your business reputation, so you can’t wait for ages to get an answer. Every problem must be addressed as quickly as it occurs.

You can apply for a payment processor through a bank or a provider’s website (also read How Do I Get a Merchant Account?). Always read your contract thoroughly before making your final decision. Finding the perfect payment processor for your business is never easy, so check everything twice to make sure you’ve made the right choice.

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Sandra Wróbel-Konior

A well-established Content Marketing Specialist with a tech-savvy personality, experience in writing, and a passion for reading. Staying up to date with the latest technology and social media trends, in love with GIFs and craft chocolate.

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