Payment Processors: Guide to Choosing the Right Solution

As a retail business owner, how much do you know about how your payments are managed? What actually happens when your customers swipe or tap their cards? Most retailers don’t think too much about these things, but it is worth knowing at least a little about how the complex technological processes behind your payments work. The key player in each transaction is your payment processor.

A payment processor is a company that manages credit card transactions, acting as a mediator between you – the merchant – and your bank. Your payment processor is probably also your merchant service provider, as payment processing is just one aspect of merchant services. The payment processor sets up and operates a secure communication network that transmits information from your customers’ cards to your bank and your customers’ banks. Your payment processor is the service provider that supplies and installs your credit card processing machines. These machines may or may not be integrated with your POS system.

Payment processing companies, also known as payment service providers or acquirers, have two principal, interlinked responsibilities: to facilitate electronic – mostly card-based – transactions between merchants and customers, and to ensure that these transactions are safe and secure.

Firstly, the payment processor will install the necessary hardware at your place of business. Then, every time your customer makes a purchase, they insert or tap their card on the terminal the processor has provided. The payment processor receives the relevant details – the amount, the customer’s credit card details and your merchant details. It then transmits this information back and forth between the relevant roleplayers, such as the bank or credit card company, facilitating the completion of the transaction and the transfer of funds from your customer’s account to your own. This process takes place in a matter of seconds.

The transaction process involves the transmission of sensitive information that could affect your or your customer’s finances and personal data. Therefore, one of the payment processor’s biggest responsibilities is ensuring that transactions can take place safely and securely.

The communication networks the payment processor sets up and maintains include encryption and security measures to protect the financial data being moved back and forth. This involves measures such as encryption and tokenization. Payment processors are required to comply with the relevant regulations and authorities, such as the Financial Consumer Agency of Canada (FCAC) or the Payment Card Industry Data Security Standard (PCI DSS) globally. When a transaction is initiated, the processor requests authorization from the issuing bank to ensure that the transaction is safe and legitimate, and that the customer has the necessary funds. This request takes place over a carefully secured network. Advanced algorithms and other tools are used to monitor transactions for fraudulent activity, so that both businesses and customers can minimize their exposure to fraud.

How do payment processes carry out these complex procedures so efficiently and securely?

The process is as follows:

As you can see, the process is fairly complex, with several points of contact between various players. The merchant communicates with the payment processor, which then makes contact with the card network, which then interacts with banks to finalize the transaction. The payment processor facilitates all these interactions, which take place electronically and are usually completed within seconds, provided there is an adequate connection.

Now you know what a payment processor does, how should you go about choosing one? To find the processor that will work best for you, assess your options according to the following criteria:

You may hear several interrelated terms as you search for your payment processor. These are sometimes conflated with one another, making it confusing for merchants, especially first-time business owners. These include “payment processor,” “merchant accounts,” and “merchant services.” These are all very distinct terms and also quite easy to understand once they have been clarified. Let’s focus on merchant accounts.

When you sign up with a payment processor, you will usually be assigned a merchant account. This is a special bank account that is used specifically to accept payment from your customers via credit card, debit card, or electronic transfer. Your merchant account is a temporary holding account for the payments you receive from your sales. The funds are then transferred to your nominated bank account after being held in the merchant account for anywhere between one and three business, depending on the terms of your agreement. Even though these funds are not yet in your primary business account, they are held safely on your behalf, and the merchant account provider has a fiduciary responsibility to keep them safe and to transfer them to your bank account at the specified time.

Payment processors are sometimes confused with merchant accounts, but they are actually two very different things. They are two separate, interlocking components of electronic payments. Payment processors facilitate the transfer of information and funds, while merchant accounts merely hold funds before they are moved to the business’s regular bank account.

When you start looking for a payment processor, you will probably find yourself facing the choice between a handful of industry leaders. Let’s take a look at them and compare their offerings.

Among the top global payment processors are the following major names:

If you want to be able to receive payments via various electronic methods, a payment processor is essential. Payment processors provide a number of benefits that your business really cannot do without. These include:

Wherever financial data is being handled, stored and transmitted, security will always be a concern. Payment processors provide a safe and secure ecosystem in which this information can be held and shared among the relevant parties while excluding possible threats. Through encryption and tokenization, among other measures, processors provide a closed system for maximum security. By constantly updating these measures, processors stay ahead of the latest hacking and fraud methods.

Simply put, payment processors make payment easy, fast and convenient. With the simple tap of a card, funds are transferred from customer to merchant in a matter of seconds. This is only possible with the help of a payment processor.

Like all services and service providers, payment processors have potential shortcomings. Keep these in mind when you search for the best payment processor for your business.

As we have mentioned before, it is vital to pay close attention to a payment processor’s fee structure before committing to working with it. Payment processors can charge in a variety of ways. It could be a flat rate, a percentage on each transaction, or some other method. What matters is that you are informed completely and transparently exactly how you will be charged. Some processors may vary their calculation formulas, meaning that your fees will vary from month to month. This is not something you should accept as a retailer. Instead, choose a payment processor that charges consistent fees at all times.

Technical issues are always a possibility with your payment processing system. The most important thing is that you are equipped with the tools you need to overcome these issues as quickly and effectively as possible. This includes comprehensive training to ensure that staff members can identify and fix problems when they arise and 24/7 technical support that allows you access to experts who can provide knowledgeable and effective assistance when you need it most.

Access2Pay is a leading point-of-sale system that seamlessly integrates with all major payment processors. We would be happy to help you choose the best payment processor to complement your POS system. Contact us for help and more information.