Being able to accept payments securely is a must for every business. For merchants newly entering the payments arena, it can be difficult to understand what exactly is required of you and where you stand in the transaction flow. This article aims to break down the events taking place behind the scenes when a customer pays for your goods or services. Additionally, we will drill down into all the key information that merchants need to know about the card payment eco-system and outline the role of each player involved in the transaction process.
An overview of the card payment industry
In the seconds it takes for a card payment to be completed, it may be hard to believe that a cast of numerous players is involved to approve or decline the transaction. These players are financial parties and institutions that must be seamlessly connected to ensure that consumers are receiving the near-instant transaction experience that they expect.
For every card processing transaction, once the consumer provides their card details, they are encrypted by the payment gateway and an authorisation request is sent by the acquirer to the issuer. In turn, the issuer verifies whether the customer has sufficient funds and whether the cardholder’s details are valid. Based on this information, they will either approve or decline the transaction. If the customer has adequate funds, they are sent from the issuing bank to the acquirer and then on to the merchant.
Sound complicated? In our latest video, we explain what each player in the card payment industry does. If you want to find out even more information about the key players, keep reading to better understand the role of payment service providers (PSPs), acquirers, card schemes and issuers in the eco-system.
The merchant
A merchant represents a company that sells goods or services online or in physical locations. Merchants may operate in various industries, such as retail, hospitality, travel, eCommerce, gaming, gambling, forex and many more.
The payment gateway
A payment gateway is the technology that authenticates and securely transmits payment data between all the parties involved in the transaction flow. It operates as an encrypted and secure channel which passes the consumer’s payment details from the transaction device to the acquiring bank for authorisation and approval. Once approval has been granted from both the issuer and the acquirer, the payment gateway sends back verification to the merchant.
The acquirer
Acquirers are financial institutions that create connections with the major card schemes, including Visa and Mastercard. The main role of the acquirer is to securely route payment transactions through the card schemes to the respective issuer that issued the customer’s credit or debit card. Their other equally important function is to ensure that the relevant funds are deposited into the merchant account. Also known as acquiring banks, they are essential for card processing. Merchants need to negotiate and sign a Merchant Services Agreement (MSA) before they can open an account with an acquirer.
The payment service provider
A PSP enables merchants to accept payments and acts as a mediator between them and the various financial institutions involved in the transaction flow. Based on the merchant’s vertical and the needs of your business, you will need to work with a PSP that can efficiently and securely process all the payment methods you require. It can be difficult to choose a PSP that can deliver based on the specific needs of your business. We have created an extensive card payment processing guide, so merchants know what to look for when selecting a new PSP.
The card schemes
Card schemes, such as Visa and Mastercard, form the link between the acquirer and the issuer, so that card transaction details can be passed between the two. Their primary roles within the payment processing industry are to provide the necessary technology and to act as a regulator, by setting procedures and rules.
The issuer
The issuer, also referred to as issuing bank, issues both debit and credit cards to consumers. Once a transaction has been placed and routed to the issuer through the card scheme, the issuing bank will have to determine whether they have enough funds or credit to cover the amount requested. If the transaction is authorised, they are responsible for billing the cardholder for his purchases. Merchants rarely have direct contact with issuers as the communication is mainly handled by the acquirer, for example in the case of chargebacks.
How to choose the best card processor for your business?
Choosing the best card processor for your business is no small task. Merchants should put time into researching the value proposition of payment service providers and acquirers based on their needs. A merchant’s primary concern when entering into the payments eco-system is finding a payment partner that will help generate revenue and drive efficiencies within their business. You need to first determine your target audience and their preferred payment methods. From there, you can work to find a payment service provider and acquirer that fulfils your business requirements to ensure that you are getting paid with minimal stress.
Another important aspect to look out for when selecting a payment partner is their approval ratio; you want to ensure that they are accepting a high volume of transactions, but also have reliable fraud management tools in place. In turn, your customers will benefit from a seamless and secure payment experience. Last but not least, merchants newly venturing into the card not present world should look into their payment partner’s level of PCI compliance (read more about PCI compliance)
Takeaway
Hopefully, our overview of the main parties involved in card processing has unravelled the hidden mechanisms of the eco-system. As a merchant, it is important get a grasp of what is going on behind the scenes and learn about how all the pieces of the puzzle come together.
emerchantpay is a payment service provider and global acquirer for most popular card brands, offering multiple global and local alternative payment solutions. We will work closely with you to create a tailored solution that enables you to drive conversions. Our modern and secure payment gateway coupled with our range of acquiring services, means that our merchants can seamlessly accept payments and optimise their performance. We’re on a mission to simplify payments so you can do what you know best – growing your business far and wide.
Reach out to the team today to learn more about how our in-house acquiring and payment gateway solutions can benefit your business.