There is a wide range of payment processing solutions on the market today, but not all will be suited for your startup business. It can be tricky to decide which payment processing company to choose, and how you wish you set up your e-commerce platform.
This article dives into the different types of payment processing options available, so keep reading to see which solution is best for your startup business!
What is a payment processing service?
If you accept payment from your customers, you will need a payment processing service provider. They enable an efficient and seamless payment process for both the customer and the merchant.
Payment processors fulfill multiple steps, from authenticating a transaction to settling it. They make sure merchants receive money when customers pay with credit or debit cards.
Payment processors are crucial in the global financial chain, as they act as the messenger between the merchant, customer and financial institutions.
How does payment processing work?
There are three main steps to payment processing:
Authorization
Funding
Settling
When a customer makes a purchase, they will either pay with a card at the point of sale (POS), a bank card terminal/machine, or enter their card details online.
Once this is done it seems like the transaction has been completed, but there’s more that goes on behind the scenes.
On the merchant end of things, a request is made to their payment processor for the authorization of the transaction, then the following happens:
The payment processor submits the transaction to the card association connected to the issuing bank.
The issuing bank either accepts or rejects the transaction based on certain criteria.
The issuing bank then sends either an approval or a rejection status back to the merchant bank and finally to the merchant.
The different types of payment processing solutions
Here are the four most common types of payment processing:
Merchant account + payment gateway
The most traditional solution for online payment processing involves the use of both a merchant account and a payment gateway.
A merchant account is a separate bank account that allows the business owner to accept credit card payments. The online payment gateway is what connects your online store and the merchant account.
While you gain control over security options and other customizations, you give up being able to process transactions and take payments immediately.
Combined payment solution
The upgraded version of the traditional payment processor is when the merchant account and the payment gateway are combined. This provides a fast and easy setup, however, your customers will be redirected to a different website to pay for their order. This is how PayPal functions.
Simplified payment solution
More advanced payment processing solutions are being created where you don’t need a merchant account or even a payment gateway. While they are similar to a combined payment solution, they can be more seamlessly integrated into your e-commerce website.
How to choose a payment processor
When choosing a payment processor, it is important to consider certain things apart from the pricing packages.
Some of the things that can be essential while deciding a payment processor are:
Enhanced customer service
Fraud management solutions
Tools to help business growth
Flexibility in transactions
Not all payment service providers process every type of transaction. Some may be experts at online processing, accepting card-not-present (CNP) transactions and some may only specialize in in-store payments.
Penni Payments can help improve your customer experience by providing a simple and secure payment processing system for your online checkout. You can reach out to our team for more information and start saving on transactions fees today!
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