Find out what payment processing companies do, what role they play, and how they work in order to know what to look for in a credit card processor.
If you want to successfully run a business, you know that keeping things running consistently and smoothly is essential.
Part of keeping your business running smoothly is making sure your payments are reliably being processed.
Not surprisingly, a good credit card processing company will help you do this. But what do they actually do? And what should you know about them to choose the best one?
We’ll get started answering all of these questions by understanding what role they play in the entire payment system.
What is a payment processing company?
It’s easy to look up a textbook definition of what a credit card processor/payment processor is and have no idea what it actually means.
Instead, we’ll try and answer this question in a simple, clear way: A payment processor handles payment transactions between a merchant and consumer’s banks. These include credit card and debit card transactions. They help expedite card transactions and securely transmit financial data.
Of course, that’s not the entire story. It’s important to understand which banks, and on behalf of whom.
What role do payment processing companies play?
Credit card transactions are far more complicated than cash or check transactions, but they are also much more convenient.
If you want to fully understand the entire system behind credit card transactions, take a look at the article How Does Credit Card Processing Work. What we will do is only address what you need to know to understand what credit card processing companies do.
As a customer (the cardholder) makes a purchase at a business (the merchant), the business requests that the customer’s credit card company (the issuing bank) send funds to the business’ account (the merchant bank) via a payment processor. This payment processor sends all of this information on a card network.
So a payment processor is an intermediary in the entire process, acting on behalf of a variety of different parties to provide key information for all those involved.
Now that we understand what a credit card processing company does in general, let’s take a look at three key parts of this process to have a more in-depth understanding of them.
The key components of processing payments
Having the important role of transmitting confidential information between a number of different banks and other entities is no small matter—after all, it contains direct access to people’s finances and is one of the most closely guarded information there is.
Not surprisingly, then, there are a number of important aspects involved with what a payment processor does. Let’s take a closer look at them.
Payment processing
This is the primary role these companies play, of course. But what does this actually mean?
As the mediator between consumers, merchants, financial institutions and card networks, payment processors bear a heavy responsibility.
Payment processors oversee the entire payment transaction, making sure things move smoothly as funds are transferred from party to party, and then finally to the merchant’s account. Authorizations, settlements, fund transfers, and payment batching are some of the key responsibilities that every credit card processor has to oversee.
They are able to transmit all of this information quickly and securely via a payment gateway, which is an instrument the use that sends information between merchant and consumer’s banks. This gateway is used to either confirm a payment’s acceptance or communicates that a payment was declined.
All of these processes and transactions are the payment processor’s responsibilities, However, the work of a good payment processor doesn’t end there. Read on to find out what else they do.
PCI compliance
Transferring financial information is dangerous, since people intercepting that info can make off with thousands if not millions of dollars before they’re caught.
That’s why there are security systems and standards that legally need to be in place for every single merchant who accepts credit cards that help prevent any fraud taking place.
When a merchant meets these security systems and standards, they are officially PCI Compliant. However, this isn’t a one-and-done security measure compliance. Rather, it’s constantly being improved.
That’s why merchants need to continue to update and meet these systems. And since these standards are high, it’s not easy for merchants to meet them on their own. Payment processing companies can help their customers to meet these standards. Their expertise, experience, and equipment they provide is a huge advantage to merchants looking to become PCI compliant.
The role of a payment processor doesn’t end there, though. Find out how they can help merchants in a bind in the next section.
Payment equipment
As was just mentioned, payment processors have access to the most up-to-date credit card processing equipment for their clients to use. This can be everything from a simple credit card reader to a fully-integrated POS system, along with contactless payment equipment and mobile readers for on-the-go payments.
Does a payment processor stand behind all of this if the business is having problems accepting payments? Find the answer below.
Customer Service and troubleshooting
Since Payment processors are experts in the payment industry, having a processor with good customer service can make a world of difference when a merchant is experiencing issues accepting payments.
However, that’s not to say all payment processors offer personalized help to their clients. Find out more about payment processor’s customer service and how to spot the best service to get your business out of a bind.
Summary
A payment processor is absolutely essential for businesses to accept credit card payments from customers. They guide and facilitate the transfer of vital information quickly and securely between everyone involved: the card holder, merchant, the issuing bank and merchant banks.
Yet, some do even more by helping their clients become PCI compliant, supplying the right equipment, and providing fast, personalized customer services that keeps businesses running smoothly.
Want to find out how your business can find the best payment processor? Take a look at our free guide to help you learn the five most important steps to choosing a payment processor.