A payment processor is a company hired by merchants to handle non-cash transactions, all the way from the purchase (either online or in-store) to the funds being deposited in the merchant’s bank. The most common form of payment handled by a payment processor is credit card, but processors also work with debit cards, ACH payments and eChecks. The mechanics of transactions work as follows:
- After checkout, the merchant inputs financial details of the transaction and credit card data into the payment gateway.
- The gateway transfers this data to the payment processor.
- The payment processor then transfers the data to the card network (Visa, Mastercard, Discover, Amex, etc.).
- The card network transfers the data to the customer’s bank.
- The customer’s bank approves or declines the transaction. (If the transaction is declined, something that usually occurs when there are insufficient funds, the result is a chargeback.)
- The card network communicates approval/decline of the transaction to the payment processor, who then uses the payment gateway to inform the merchant and the customer.
- Funds are then deposited by the customer’s bank into the merchant account, and then transferred, after a set holding period, into the merchant’s business bank account.
Payment processors provide valuable services to the merchant:
- The technologies used by the payment processor have varying levels of fraud security to meet the needs of each merchant — very important for reducing the risk of credit card scams. In addition, most payment processors use systems that are PCI-compliant, which is important for preventing data theft, including theft of customer credit card information. Scams and data theft can be extremely damaging to a merchant’s reputation, customer retention and profitability.
- Payment processors that specialize in providing services to high risk companies enable these companies to accept credit cards or other forms of digital payment — services they need to offer to remain competitive or even stay in business.
- Finally, processors provide ongoing support to merchants, helping them resolve disputes and maintain good relationships with credit card issuers, while providing insightful transaction data and reports, and advising them on ways to improve or expand their payment processing capabilities.
In exchange for these services, payment processors charge merchants a variety of fees. Typically the processor gets a “cut” of each transaction and, in addition, may charge fees for chargebacks, service, terminations, etc. These fees are negotiable. Reputable payment processors clearly explain their fee structures so that your monthly statements contain no surprises.
Given the technological complexities of securely processing digital transactions, the proliferation of scammers and hackers and the scrutiny with which card-issuing banks evaluate merchants, it’s hard to imagine any merchant being ready, willing or able to process credit card transactions without the aid of a processor — even if doing so were possible. And let’s face it: In today’s environment, cash is no longer king when it comes to preferred methods of payment. Merchants who limit themselves to cash-only are essentially writing off the vast majority of whatever market they serve.
Performance Card Service (PCS) has strong relationships with leading U.S.-based and offshore payment processors, many of which concentrate on high risk merchant services. Our ability to match payment processors with merchants to get the best possible payment processing solution for each merchant’s unique needs is an art and science we’ve been perfecting for decades!