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The complete guide to payment processing

In the process of launching an online business, one of the tasks for merchants is the process of accepting payments on the site. While in offline trading, the transaction process is quite simple, certain difficulties can arise in online settlements, and for those who are not familiar with the peculiarities of online settlements, it will be more difficult to resolve them.
Paying for goods and services online has become both easier and more difficult. Previously, cash and checks were the preferred methods of payment. However, with the advancement of technology, users are increasingly choosing to pay with both credit and debit cards and various alternative methods. Also, one of the reasons for the rapid growth of contactless payments is COVID-19.
In this article, we will consider which parties are involved in the transaction process and what a merchant needs to make safe payments.

How is the transaction process flow?

Transaction initiation occurs when a customer enters payment information on the payment gateway page and clicks “Pay.”

The transaction process is described below:

When a customer uses their credit or debit card to purchase goods or services online, the payment gateway receives and processes this information. After that, the merchant’s bank sends a request to authorize the payment through the payment network (Visa, Mastercard). After confirming the authorization, the information flows to the issuing bank where the payment details are checked for fraud.

If a customer pays for a service with a debit card, the issuer also checks it for funds to complete the purchase.

If the payment has been approved, the funds are debited from the buyer’s account and credited to the merchant account of the business owner.

What parties are involved in the transaction process?

  • Customer;
  • Merchant;
  • Issuing bank (the bank that issues bank cards);
  • Acquiring bank (client’s bank);
  • Payment system;
  • Payment processor.

What is an acquiring bank?

Acquiring bank is a merchant’s bank that accepts funds received by a merchant from buyers.

Acquirers are one of the key participants in payment transactions and are partners of the Visa and MasterCard credit card networks. Acquires, having licenses to provide financial services, are fully responsible for all transactions of merchants, therefore, they provide a constant comprehensive check of all incoming funds.

The acquiring bank can also serve as an issuing bank.

What is an issuing bank?

Issuer – a legal entity that issues securities, money, bonds, stocks, bank cards, traveler’s checks, payment documents into circulation.

If we are talking precisely about bank cards, the main function of the issuer is to provide transactions, so that the client can pay for purchases and use services in a non-cash form. Usually, two banks are responsible for the movement of funds during a transaction – the issuer and the acquiring bank.

What are a payment processor and a payment gateway?

A payment processor (payment provider) is a financial institution that organizes the process of accepting payments on e-commerce sites and provides related services.

What services does the payment processor provide:

  • Provide merchants with the ability to accept transactions from customers;
  • Ensure the security of data transmission under the international PCI DSS protocol;
  • Allow to accept both traditional bank cards and alternative payments;
  • In the event of chargebacks, they take over the dispute resolution process;
  • They provide various additional services: invoicing, bulk payments, multicurrency, real-time currency conversion, etc.

All of these services are available thanks to the payment gateway – software that payment processors provide. Any payment page on the site is, in fact, a payment gateway.

What is a merchant account?

This is a special bank account that allows the owner of the company to accept payments from customers on the site. Funds received from clients first go to the merchant account and then to the corporate bank account.
Usually, money can be withdrawn to a personal account a few days after receipt.
If you want to open a merchant account, the bank will require you to provide a specific list of documents:

  • Having a corporate bank account;
  • Identification number for tax calculations;
  • The legal address where the bank, if necessary, will send letters or other documentation;
  • Merchant credit history for 2 years;
  • Contact details.

Accepting credit card payments without a merchant account

For the most part, collecting all the necessary documents for opening a merchant account is a rather lengthy process and it is not a fact that your application will be approved. Fortunately, there is a method to avoid unnecessary difficulties.

Third-party payment providers provide the ability for business owners to accept payments on the site without having to have a merchant account.

These companies are great for small businesses, businesses with an imperfect credit history, or high-risk businesses.

What are the benefits of a third-party payment processor?

  1. Payment gateway integration is usually free and takes place within a few days;
  2. No monthly fees. More often than not, these organizations only charge transaction fees;
  3. Opportunity to work with high-risk industries, startups;
  4. High security of data transmission.

Why PayOp?

Our company provides a full range of processing services for almost all business industries.

PayOp benefits:

  • Transparent transaction fee – 2.4% + 0.2 $. Free integration;
  • More than 10 options for withdrawing funds;
  • The company accepts merchants from over 170 countries;
  • Thanks to our convenient API, you can start accepting payments in a matter of hours;
  • Mass payments;
  • All payment data is fully protected thanks to PCI DSS standard and modern fraud prevention tools.
  • Advanced analytics and real-time reporting.
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How to Get a Shopify Payment Gateway?
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