If you are new to accepting online and credit card payments, you may ask yourself, “what is a payment processor?” Unless you have a business that accepts credit and debit cards, you may not have even thought about payment processing before. The purpose of the payment processor is to manage the electronic payment transaction process and act as a mediator between the merchant and the financial institutions.

Whether your business is brick-and-mortar or online, you must provide customers with a way to pay for their purchases. Most people don’t even carry cash around anymore, so their preferred method of payment is often credit or debit. Credit and debit card transactions require technology to transmit the data that will move the funds from one account to another.

What Is a Payment Processor and Who Needs One? 

A payment processor is a company that collects the information from a merchant’s transactions and relays that information to both your bank and the customer’s bank. The payment processor ensures that there are enough funds and the customer’s card is valid before allowing the transaction to go through. This verification process occurs in a matter of seconds.

Businesses that wish to accept online and electronic payments need a payment processor. The payment processor can help them meet PCI compliance and provide them with security solutions, customer support, and the equipment necessary for card acceptance.

Why Is Payment Processing Important?

Customers are using debit, credit cards, and mobile payments for their transactions because they are very convenient. Online retail sales, which use electronic payments, surged to$794.50 billion in 2020. In the past year, 55% of consumers used a credit card for their online payments. The popularity of digital and mobile wallets is increasing, as they were 44.5 percent of global e-commerce sales in 2020. Consumers are favoring the convenience of electronic payment methods.

The payment processor plays an integral role in ensuring that electronic payments are legitimate. Payment processors verify the customer’s billing information and validate the credit card details. They make sure that the correct amount of funds will be available for the transaction and authenticate the funds for each payment. The processor also approves the payment requests and transfers funds to the merchant account and then your bank account.

The payment processor ensures that the financial information is secure during the transaction by encrypting the data on their servers. This gives the merchant and the customer peace of mind that their financial information is safe.

How Does the Payment Process Work?

The process begins when merchants offer goods or services to their customers. The customer who wishes to pay through electronic methods provides their financial information to the merchant by entering it into an online encrypted website or credit card reading equipment.

In order for the funds to be transferred, the merchant must have a merchant account with an acquiring bank, which is a financial institution that is a member of a payment network such as Mastercard or Visa and accepts the payment on behalf of the debit and credit card company. The acquiring bank assigns each merchant a merchant account number that is unique to them and used to identify the account as the owner of the transaction information that gets sent to the bank.

When the customer makes an online purchase or uses a card payment, the merchant submits the transaction information to the payment processor, which relays the information to the credit card network that verifies the cardholder’s details and approves or declines the charge.

If the charge is approved, the issuing bank bills the cardholder the amount due to the merchant. The funds are then transferred from the cardholder’s account to the merchant account. If it declines the transaction, a notification is sent to the merchant, and the transaction does not go through.

How to Select a Payment Processor

Your payment processor decision should also depend on the volume and value of your transactions. For businesses with high-value transactions, it is best to select a processor with lower transaction fees and a set monthly rate. Keep an eye out for hidden fees since they are not advertised.

Your payment processor should allow you to select the services you would like to offer your customers with little restriction. Not every customer will want to use a credit card; some will want to make purchases online with electronic payment methods such as PayPal. By providing customers with a variety of e-commerce payment options, you will extend your reach and increase customer satisfaction, as each will have a payment method they prefer.

Additionally, check out the fraud protection services the payment processor offers. Find a secure payment processing service that will flag and deny potentially risky transactions. Ensure that the payment processor encrypts the data during the transaction to keep it safe, especially since fraud and unfair chargeback policies have increased during COVID-19.

Compare a few payment processors before making a decision and find one with the expertise and customer support that matches your needs. A good payment processor can make a world of difference for your e-commerce or brick-and-mortar business. At NMA, we deliver tailored payment processing solutions to meet your needs and keep your costs low. Visit NMA to find out how our payment solutions can benefit your business today. At NMA, We Work For You™!

About NMA

NMA is a merchant advocacy group dedicated to reducing or eliminating the unnecessary fees associated with accepting credit card payments. Since 2004, NMA’s payment processing solutions have been delivering tailored solutions, best-in-class customer service, and high-quality service offerings for businesses across multiple industries. Whether it’s high-risk or low-risk, brick-and-mortar or e-commerce, NMA will create the best processing experience for your company. For more information, visit us at our legacy.nationalmerchants.com or by calling (866) 509-7199.