What is A Credit Card Payment Processor?


As a business, it is essential to keep up with the latest industry standards in order to maintain customer interest and loyalty. Currently, going cashless is the most popular with more consumers choosing to shop using credit cards and debit cards rather than cash. Using credit cards is considered convenient and faster and it also has benefits to the merchant such as appealing to a broader variety of customers.

Credit Card Payment System
Credit Card Payment System

Payment processor

Then next logical question is how do you get the money from the customer’s card to your business account? It is through a payment processor. Payment processors are the third party companies that provide the connection for the merchant to receive credit card payments through an acquiring bank. The payment processor goes through a number of protocols to ensure that the transaction initiated from the source is valid in order to the cash to be transferred to the merchant. Payment processors have to meet certain standards and industry regulations in the services they offer, protecting both the client and the merchant from identity theft, fraud and chargeback among other illegal activity.

Payment processing goes through three fundamental steps. In case the credit card is denied, you should give it back to the client and ask for another means of payment. For a successful transaction, you should expect the following:

• Authorization

Authorization is the only way to accept credit cards for payment of products and services. In some transactions, you may need to validate the cardholder’s identity by requesting for their ID cards or driver’s license. Expired or maxed out credit cards will not be validated. Cards that have been flagged by credit card companies will also give you a warning in case the cardholder tries to use it in your store. As a merchant, you do not have to explain to the customer why the card was denied and you can request them to contact their credit card company for more information. If the transaction is authorized, you will receive an alert and the credit card processing machine will generate a receipt that you will give to the client along with their card.

Credit Card Payment Processor
Credit Card Payment Processor

• Settlement

Even though the sale is complete and the customer has left, the sale is still being processed. At this point, the payment needs to be settled. The third party company will communicate with the credit card company to make the deduction from the customer’s account and forward the deducted amount to them. There are various protocols involved in this transfer, including getting the money through the acquiring bank or merchant account.

• Funding

Once the transaction is successful and the third party company has received the amount from the credit card company, they can now start working on funding your account with the payment from the transaction. The amount you will receive from the transaction will be less the processing fees sent to the payment processor. When choosing a payment process you should shop around for cheaper credit card machine rates. This step is just an extension of the settlement process. However, the funding schedule may vary depending on the agreement you have with the payment processor.

Author Bio

According to Anjelina Smith, any business that wants to reap more in sales should join the credit card payment system. Charles is a merchant service provider working with small and medium sized business.