In the modern digital business landscape, it would be no wrong to say that payment processing is the backbone of all financial transactions. And for anyone who owns a business, whether it’s a small start-up or a large enterprise across various sectors, it is paramount that they understand the nuances of payment processing.
This will help them establish an efficient payment processing systemin their business, facilitate safe and secure transfer of funds, and offer a seamless payment solution to their customers. Today, people make payments through various modes, including debit/credit cards, digital wallets, and net banking, among others. Comprehending the intricacies of payment processing is vital for protecting a business’s financial interests and facilitating the smooth flow of revenue.
What is payment processing?
In simple terms, the payment process is a series of steps involved in transferring the funds from a customer to the business during a digital transaction in a secure manner. It leverages security systems, such as payment gateways and banks, to facilitate and verify transactions. Thus, it ensures that the payments are processed efficiently and promptly.
Key players in payment processing
Although on the surface it may seem that payment processing is a transaction occurring between a customer and a business or enterprise, there are many other parties or players involved in the transaction who play a crucial role in completing the payment. These players are:
Customer – The individual or entity making the purchase
Merchant – The business or enterprise offering the good or service
Payment gateway – A software application that enables online payments
Payment processor – It is a critical entity that handles the technical aspects of payment processing
Issuing bank – The bank that issues the customer a debit or credit card that they use to make payments
Acquiring bank – The bank that processes the payments and handles payment collection on the merchant’s behalf
Card network – It is the global network that connects issuing banks with acquiring banks. The most popular card networks in India are MasterCard, Visa, and American Express
Working of payment processing
Now that you understand the payment process and its key components, let’s examine how payment processing works.
The payment process typically involves a series of steps, which include:
Step 1 – Payment initiation
A customer makes an online purchase, adds selected items to the cart, and proceeds to make the payment. At this stage, the customer would reach the checkout page, where they are given the choice to select their preferred mode of payment, such as credit card, debit card, net banking, UPI (Unified Payment Interface), or digital wallet.
Let us assume the customer chooses to pay with their credit card. They enter the card details on the checkout page.
Step 2 – Payment data is sent
As soon as the customer enters their card details and proceeds to make the payment, the merchant’s website or app captures the payment information and the card details, then sends it to the payment gateway integrated within the website for accepting payments.
Step 3 – The Payment gateway processes the request
The payment gateway receives the data, encrypts it, so it is protected from unauthorised access and fraudsters. It then routes the request to the appropriate payment processor.
Step 4 – Transaction authorisation
The payment processor communicates with the issuing bank, i.e., the bank that issued the card to the customer, and verifies the customer’s card details, as well as checks if they have the required funds in their account to make the payment. And, the issuing bank responds with an authorisation code.
Step 5 – Response from payment processor
If the payment processor does not identify the payment request as suspicious and the customer has sufficient balance for the payment, it sends a positive response to the payment gateway. And if the transaction is declined, it sends a negative response.
Step 6 – Updating the order status
Depending on the response received from the payment process, the merchant’s online payment system updates the order status accordingly. If the processor has authorised the payment, the money is transferred from the customer’s account to the acquiring bank, i.e., the merchant’s bank that receives the payment.
Step 7 – Settlement
After a specific interval, typically daily or weekly, the acquiring bank transfers the funds from the issuing bank to the merchant’s account, deducting the applicable processing fee.
Advantages of adding a payment processing system for businesses
For all businesses that sell goods or services online, they must be willing to accept payments online. For this, businesses must integrate a robust payment processing system into their website or application, providing a simple and secure payment experience for customers. Let us explore its other benefits.
- Better customer experience and satisfaction
By integrating a robust and efficient payment processing system into their website or mobile application, businesses can offer their customers a wide range of payment options and cater to their preferences. It also helps simplify the payment process for customers, eliminating the need to send a payment link and thereby boosting customer satisfaction.
- Increased sales and revenue
By implementing a payment collection system on the website, the payment process is simplified, which helps increase spontaneous or unplanned purchases and leads to higher conversion rates. In addition, by offering a wide range of payment options, businesses can attract more customer, and increase their sales and revenue.
- Reduces operational cost
With the advancements in payment processing technology, businesses can now easily integrate an online payment system directly with the general lenders. This helps eliminate the need for a dedicated resource or employee to manage accounts receivable and manually enter and maintain the data. The system will do both tasks simultaneously and more efficiently, resulting in savings for the business’s operational costs.
- Seamless integration
Modern payment processing systems are easily integrated with any existing platforms that businesses use. Their adaptability, flexibility, and user-friendly features ensure a smooth integration process. You may be able to integrate and use the system even without having any technical expertise. And once the integration process is complete, you can start accepting payments immediately.
- Enhanced security
Today, with rising concerns about data breaches, identity theft and online fraud, online customers prefer shopping with only businesses that promise safe transactions and safeguard their sensitive data. This is where a payment processing system plays an important role.
Modern payment processors have built-in security features, such as data encryption and data scrambling, that not only protect the customer’s data from fraudsters but also enable businesses to easily identify suspicious transactions, allowing them to take timely remedial action.
In addition, the payment processing systems address security and compliance concerns by eliminating the need for IT scans and audits, and by directly handling financial data.
How to Select the Right Payment Processing Solution?
Businesses looking to integrate a payment processing system into their platform to facilitate easy, quick and secure payment processing must be careful and choose the right system to suit their specific needs. Some of the important factors that they must take into account are:
- PCI DSS compliance
Businesses must prioritise integrating a processing system that complies with PCI DSS (Payment Card Industry Data Security Standard) regulations. If there is non-compliance, the business may face issues like data breaches and even have to incur penalties or legal issues. This could potentially damage the business’s reputation and affect its credibility.
- Customer support
The customer plays a critical role in payment processing, particularly when it comes to handling unforeseen issues. A credible and reputable payment processing system provider must deliver swift customer support to address the challenges you or your customer may face during the transaction.
Whether it is navigating through the technical glitches with the system or resolving payment discrepancies, a quick and responsive customer support will ensure a seamless experience for customers.
- Customisation
The payment processing system must have a simple and user-friendly design and features. It should also allow business owners to customise the system to align with their specific business requirements and the customers that they are catering to. The system must have standard options like accepting payments through credit/debit card, and provide an easy checkout for a seamless customer experience.
- Transparency in fees
A transparent fee structure is necessary. Businesses must understand that the processing rates for different types of cards and details regarding various fees, like monthly statement, batch fees, etc. Payment processing solutions and payment links play an important role in achieving these criteria.
Conclusion
Payment processing is the cornerstone of modern businesses. It is an intricate process that ensures the swift exchange of funds between customers and businesses in a secure way. Businesses can leverage the various benefits of a well-structured and robust payment processing system. It helps reduce the administrative cost, boosts sales, provides a better shopping experience to the customers, facilitates payments through different modes as per the customers’ preferences and fosters customer loyalty.
A payment processing system can also help businesses use automation for handling tasks like authorising the payments, eliminating the need for having a dedicated resource and allocating them for other critical business operations. Finally, a payment processing system can help keep track of the everyday transactions, analyse them and gain valuable insights on the spending trend, the customer preferences and enhance the offering for better outcomes.
