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- The role of advanced APIs in enabling seamless payment flows for MedTech innovators
- Maximising positive impact: the synergy of AI, sustainability, and comprehensive payment solutions
- Deconstructing payment processing
- How to accept payments on social networks?
- What are the best payment gateways for WooCommerce?
- What is the best payment gateway for marketplaces and platforms?
Deconstructing payment processing
Payment processing goes deeper than just processing payments. Luckily, you’re in the right place. Continue reading to learn more about payment processing, including:
- What payment processing means
- How payment processing works, including the associated fees
- What the role of payment service providers (PSPs) is in payment processing
- How merchant’s accounts are essential in payment processing
- The role of payment gateway solutions in website payment processing
- The best online eCommerce payment processors and popular processing companies
- How Fondy can help platforms get the most from marketplace payment processing
What is payment processing?
Payment processing is the handling of the authorisation, processing, and settlement of payment transactions in a secure environment. Payment processing is managed by payment processors, which are third-party service providers that facilitate sales and transactions between merchants or businesses and their customers.
Some of the most common payment processing include:
- Bank cards – physical debit cards issued by banks and other financial providers that enable holders to pay for products or services.
- Digital wallets – software applications on mobile devices that allow the electronic transfer of money and other digital currencies.
- Bank transfers – an electronic transfer of funds that occur between businesses (b2b) and individuals (c2c), and individuals to businesses (c2b), or b2c business to consumer.
- Contactless payments – when credit and debit cards, smart cards, or mobile devices use near-field communication (NFC) technology to make secure payments in various currencies.
In online eCommerce, payment processors act as intermediaries between the merchant’s bank account and the customer’s bank account, ensuring the secure integration and swift transfer of funds and payments. While payment gateways act as a link between the merchant and the payment processor, the payment processor handles the actual transaction.
In other words, the difference between a payment processor and a payment gateway is that the payment processor is the service integrating the transaction. In contrast, the payment gateway is the channel or website responsible for securely integrating the payment data, i.e. card information, security codes, etc., to the payment processor and credit card networks.
Some of the best payment processing companies sometimes integrate all the services a merchant needs to accept payments, including equipment and support for setting up a merchant account. In most cases, the payment processor will also have their own gateway. The best benefit of this is that the payment processor can manage the entire transaction flow rather than relying on a third-party provider or website.
How does payment processing work?
That depends on many factors, including the payment channel and payment method. For example, imagine a customer of a business paying for goods via dropshipping with a credit card. After you’ve given them a subtotal on the checkout screen, the customer will then enter their credit card into your payment gateway via a POS or card reader. After that:
- All payment information, including the card number and customer details, are encrypted by the payment gateway and payment processor for fraud protection.
- The payment processor confirms with the payment gateway that the customer has the funds necessary to make their purchase.
- The payment processor tells your bank to credit your merchant account with funds minus any fees and currency charges.
- The funds are then deposited into your business’s bank account at a predetermined date and time, perhaps after the goods have been dispatched after dropshipping.
If the transaction is on a website online, the steps are similar in that:
- A customer goes to the merchant’s website to complete a purchase using their credit card or debit card.
- The customer enters their payment information into the payment gateway.
- The payment gateway encrypts the payment data and integrates it into the payment processor.
- The payment processor communicates with the payment gateway to approve or deny the transaction.
- The payment processor tells the company’s bank to credit their account for the transaction.
- The funds, minus the aforementioned fees, go into the company’s merchant account and afterwards are deposited into the business’s bank account.
Alternatively, eCommerce merchants can turn their payment processing over to a number of different solutions, including the best payment service provider, merchant account, and payment gateway.
Payment service providers
Payment service providers (or PSPs) are providers, websites, or solutions that offer a variety of services to a business, including the best way to pay (their suppliers, partners, etc.) and get paid (by the customers).
The best payment service providers, like Fondy, give merchants the best way for merchants to pay and get paid by providing them with both a merchant account and a payment gateway, which offers businesses the best way to move and manage funds seamlessly.
Whenever a customer buys goods or services, payments go first to the payment service provider and are then transferred to the eCommerce merchant.
What is a merchant account?
A merchant account is a type of bank account used by merchants or businesses to accept credit card payments. Business owners can usually apply for a merchant account with their existing bank, but it’s often more convenient to use one that comes as part of a payment processor or processing provider. For example, a Fondy Flow Payments account includes access to the Fondy gateway and an IBAN account which has all the best functionalities, integrations, and benefits of a merchant account solution and more.
Merchant accounts require a partnership with an acquiring bank that enables all communications during electronic payment transactions. Unlike traditional business bank accounts, merchant accounts are used as go-between accounts where payment processors can deposit the proceeds from a transaction. In most circumstances, the proceeds can remain in the merchant account for up to three business days during the payment processing phase.
It’s worth noticing that funds deposited into merchant accounts have already had the payment processor’s processing fees and costs deducted. For example, for a sale of £1,000, the payment processor may only deposit £950 into a merchant account, assuming the processor’s and other solution’s fees add up to £50. The funds, i,e, the £950 plus other sales proceeds can be transferred to traditional business accounts on a daily, weekly, or pre-determined basis.
Business owners will also be aware that while money is in a merchant account, they cannot access it. But once the money is fully processed, the funds are deposited into your business bank account
For some merchants and businesses, every type of payment channel, such as in-store or online websites, will need its own merchant account. That means that you should research the best payment service providers and solutions to find the one that best supports your business model and what sales channels you’ll be using to collect payments.
What is a payment gateway?
A payment gateway is a system, software, or technology that creates a secure connection between an eCommerce marketplace or online platform and a payment processor. The best benefit of the gateway’s technology is that it securely encrypts, verifies, and secures customer information and bank card data during every sale or transaction.
For example, Fondy acts as both a payment service provider (PSP) and a payment gateway. As a payment gateway, Fondy enables companies to accept payments in a variety of ways, including recurring payments, multiparty payouts, multicurrency payments, instant settlements, and split payments.
Even better, the Fondy gateway, along with the aforementioned host of payment methods, means that eCommerce merchants have access to the best payment features and popular options, such as most:
- Abandoned cart reminders
- Digital currency wallets such as Alipay
- Cryptocurrency wallets like Coinbase
- Popular local options such as iDEAL
- Open Banking options
Payment gateways or payment processors
Although payment gateways and payment processors are different, they often get mistaken for each other. While marketplaces and platforms may initially wonder whether they need a payment gateway or a payment processor, the truth is that they actually need both. That’s because payment gateways and payment processors work best when they work together.
Payment processors are the companies that facilitate transactions, while payment gateways are the tools that communicate transaction messages between merchants and customers, such as whether the payment is accepted or declined. While most marketplaces and platforms can use a separate payment gateway and payment processor to manage their payments, some companies offer both payment processor and payment gateway capabilities.
Payment processing safety requirements
Payment processing without adequate security measures will spell bad news for any merchant, platform, and their customers. Many payment processors come with the best built-in encrypted gateways to prevent payment information from being intercepted and interpreted by fraudsters. And for good reason because any data or information breaches can be damaging to an eCommerce business and its reputation.
If you’re a marketplace or platform owner, there are a couple of best-practice security measures you should have when you process payments. These are:
- Processing systems that are compatible with Europay, Mastercard, and Visa (EMV) chip cards. EMV are the international microchips that are embedded in the front side of modern credit and debit cards to protect against fraud. That’s because the microchips can only be interpreted by specialised readers whilst limiting the pathways for theft and eCommerce data fraud.
- Payment processors that are Payment Card Industry Data Security Standard (PCI-DSS) compliant. This security standard is required of marketplaces and platforms to perform bank card payment processing. These standards help guide marketplaces and platforms on the best practices regarding what data shouldn’t be retained during a transaction.
Fondy gives you the best experience by offering peace of mind by adhering to the best international security certifications like PCI DSS, international GDPR stipulations, HTTPS protocols, and more. Even better, there is an additional layer of security with our own Fondy.Antifraud™ system. That’s right, Fondy’s payment gateway is monitored by Fondy.Antifraud™, which is how Fondy can perform over 300 checks to identify potentially fraudulent or suspicious buyers and transactions.
What fees do payment processors charge merchants?
There are several fees that payment processors charge for their services. Sometimes these fees are bundled up into a single charge for the best convenience. The reason why there are several fees in the first place is that different entities involved in payment processing take a proportion of the proceeds. These fees typically include:
- Merchant bank fees. Merchant bank fees vary based on a number of factors, including your industry, how a business model operates, what the sale amounts to, etc. Sometimes, if your merchant bank is also your payment processor, you’ll pay them a merchant bank fee as well as their authorization and additional fees.
- Credit card network fees. This is called an assessment fee, and it’s charged by any credit card association or network that your business works with. The best-known credit card networks include American Express and MasterCard.
- Issuing bank fees. The issuing bank is your customer’s bank, and the fees that they charge marketplaces and platforms are also known as interchange fees. Interchange fees are fees paid between banks for the acceptance and processing of card-based multicurrency transactions.
The best online eCommerce payment processors and processing companies
When you run an online eCommerce store, finding the best payment processor is an exciting time. Indeed, it’s a sign that your platform or marketplace is ready to start payment processing, i.e. how to take payments from customers online. While exciting, it’s also a time to proceed with caution. Most entrepreneurs and business owners might not know much about payment processing, so will usually head online or seek the best word-of-mouth recommendation.
Luckily, the list below is a great place to start if you’re looking for which best payment processing options match your needs.
The best online providers include:
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How does an end-to-end payment processing solution work?
The best way for an eCommerce marketplace or online platform to handle payments is by implementing an end-to-end payment processing system. End-to-end payment processing systems let merchants manage their payment processes from beginning to end in one practical place. These systems bring all the best and necessary information involved in processing payments into one platform, giving online eCommerce business owners a complete, 360-degree view of these processes. In addition to this, the processing system should be compatible with the best and most common payment methods, currencies, and languages on the same platform.
End-to-end payment processing systems should also scale automatically, allowing companies to handle growth from handling a small number of transactions to large volumes of card payments. While some of the best global banks may offer end-to-end payment processing API services, note that processing payments are not a bank’s core, specialised, unique selling point (USP).
The best payment service providers (PSPs) like Fondy separate themselves from banks in that they specialise in money movement. Fondy’s payment API is focused on giving the best end-to-end payment experience for merchants so that they can focus on other aspects of their business instead.
An online eCommerce merchant that selects an end-to-end solution that acts as an acquirer, gateway, and processor all-in-one can be assured of the best, fastest and accurate process. This helps boost a marketplace or platform’s acceptance rates and global growth.
Additional benefits for online merchants that choose end-to-end payment processing include:
- Enhanced eCommerce customer experience
- Increased website acceptance rates
- Complete access to data and analytics
- Simplified online reporting
- Scalable online technology
- Speed, stability, and flexibility
- Cost-effectiveness
- Time management
How does tokenization in payment processing work?
In online eCommerce, tokenization (or tokenisation in the UK) is the ability of an eCommerce or online platform to securely save a customer’s payment information for future use. Merchants, platforms, and marketplaces aren’t allowed to store credit card data and information on their websites unless the data has been tokenised by a currency payment processor. Tokenisation is a method of scrambling or encrypting credit or debit card information so that it becomes unreadable online by fraudsters.
That way, marketplaces and online platforms use the token instead of the actual numbers and codes for taking payments. This offers protection if online websites or eCommerce stores ever get compromised or hacked. In most cases, the tokens become useless as they are linked to individual merchant accounts. Tokenisation is necessary if marketplaces and online platforms want to perform transactions like recurring payments, online subscriptions, or simply save payment information on its website.