Payment Processors Explained

In short, a payment processor is a company that is authorized to process credit card transactions between cardholders and merchants.

It gets more complicated than that, but having a basic idea is good so that you can understand your statements, fee structures and card payment processing procedures.

Card payment networks process billions of transactions between merchants, processors and banks every day, and there are multiple players involved in every transaction. Merchant card payment terminals or software pass transaction information to a processor that then goes through the card network to the issuing banks for approval. The issuing banks then approve or decline the transaction and relay the details back through the card network to the merchant.

But that’s just the tip of the iceberg:

Knowing if the transaction is approved or declined is vital for the merchant to proceed with the sale in the immediate term, but just as important is making sure that the funds get deposited into the merchant’s bank account.

And this is where all the behind the scenes role players come into action while the merchant waits for the deposit. Key role players include:

• Cardholder
• Merchant
• Acquiring bank (the merchant’s bank)
• Issuing bank (the cardholder’s bank)
• Card network (Visa/MasterCard)
• Issuer (the bank that issued the card)
• Payment processor (the company that brings it all together)

It is clear to see that every card payment is a complicated process, and each of these role players charge for their services: this is how merchant fees accrue.

And there is more:

While all of this back and forth is going on, the card payment industry adheres to very strict security standards that must be kept in place. So that is another issue going on behind the scenes of every card transaction as well. Payment processors relay all transaction information between role players and check that all security measures are adhered to. Preventing fraud is a key role of payment processors.

Payment processors are also responsible for dealing with customer disputes, or chargebacks, to find a resolution. Disputes arise when a customer wants a payment that was approved initially, reversed. This can happen if the customer claims that they didn’t get what they had paid for, or if the claim that the amount is not what they were told. There are also instances where a customer does not recognise the name of the merchant. All disputes must be investigated and resolved.

It all sounds very complicated, and it is! That is why finding a reputable merchant service provider that has an established track record in the card payment industry is very important. That way you can concentrate on managing and growing your business, knowing that the nitty gritty is all safely being taken care of.

For more information about the role of payment processors, or to sign up for a merchant account, please call (888) 924-2743 or go to Charge.com.