When it comes to how people pay for products and services, customers have never had more options than they do today. From online payments to mobile devices, to credit and debit cards or plain and simple paper currency (cash or check), payment methods truly run the proverbial gamut. Online payments have grown in frequency over time given their simplicity and convenience, especially nowadays considering COVID-19, and particularly among baby boomers. According to recent polling from the National Retail Federation, nearly half of respondents (45%) said they have been shopping and buying via the internet more frequently in response to some of the lockdown mandates imposed by local government officials.
The vast number of options more business owners provide are designed to improve the shopping experience and achieve authentic customer service and customer support. But whether you accept credit card payments from major players like Mastercard or lesser-known issuers, none of it is possible without merchant payment processing. If you are a recent startup or a long-standing company, you have undoubtedly heard of merchant payment processing. You may not know, however, what exactly it is all about. Have no fear, it sounds a lot more complicated than it is. The following should help clear up some things for you regarding payment processing.
What is merchant payment processing?
Merchant payment processing is essentially a high-level system of authorization in which a neutral third-party assesses the details of a customer’s electronic payment method – such as a credit or debit card – so the transaction can be verified and the funds distributed from the bank that issued the card originally. This authorization is done through something called a payment gateway. If everything checks out and the lender verifies the availability of funds, the payment processor sends the funds to the merchant accounts, minus the accompanying processing fees.
The average person might think that in any transaction – whether done in person, by phone or online – there are only two parties involved: the buyer and the seller. In reality, there are several; the payment processor essentially acts as the middleman, or the go-between, for the transaction to clear all the necessary hurdles and reach the finish line. That destination is, of course, the merchant’s account where the funds are received.
Who is a merchant in a credit card transaction?
There are several types of merchants. For example, an e-commerce merchant is someone who sells goods and services through the internet and may also only accept online payments, which are submitted electronically. A wholesale merchant is an individual or business that deals primarily with a reseller, such as a retailer, often selling goods and services in bulk. The retailer then sells those items to the customers who put them to use.
A merchant is a company that accepts credit cards as a form of payment.”
Therefore, a merchant during a credit card transaction is a company, like yours, that accepts credit cards as a form of payment. This does not necessarily mean credit cards are the only means by which you are accepting payments; just that the merchant is the seller and credit cards are the method of payment.
What is the difference between a merchant account and a business account?
A common misperception is thinking that a merchant account and a business account – such as one you maintain with your bank – are one and the same thing. They are not, but they are similar. A merchant account is essentially one step along the path before reaching your business bank account. And while a bank account is yours, a merchant account is one that you share with a credit card issuing company and is what makes accepting any payment by credit card, debit, or electronic payment possible. In short, if you want to diversify the number of options your customers can use to buy stuff, a merchant account is a must-have.
Plus, this added step before funds reaching your business bank helps you get paid more quickly, typically within 24 to 48 hours.
How does online payment processing work?
Whether customers choose to have the items they buy online shipped to them or have them prepared for pick up in-store – nearly two-thirds of customers said buying online and picking up in-store improved their shopping experience, according to the NRF survey – a payment processor makes it possible. Here, the POS system is a website, where the buyer fills out the form on the “checkout” page with details like their credit card number and shipping/billing address.
Once they are finished and click the “Place Order” button, the transaction is sent through to the credit card processing company and payment gateway. This verifies whether funds are available and that the information entered is accurate. If anything is incorrect or even one number is missing or displaced for another, the acquiring bank can stop processing the payment for security purposes. This review of information is another core function of merchant processing company.
Why is a secure gateway so important?
While payments have never been more diverse, the scores of options consumers have to spend have made it easier for them to steal sensitive data, increasing the risk of identity theft by obtaining payment details merchants store online. It is a persistent and ongoing threat that everyone is potentially vulnerable to if they are not careful.
“In 2019, there were 1,473 data breaches in the U.S. alone.”
Millions of people have been affected by it. In 2019, for example, there were 1,473 data breaches in the U.S. alone, exposing 164 million records, according to the Identity Theft Resource Center. Worldwide, data breaches during this period resulted in 4.1 billion records that were left unprotected, based on data compiled by Varonis.