Data showed that the global payment processing solutions market amounted to $39.6 billion in 2020 and is likely to reach $146.4 billion by 2030, with a CAGR of 13.75 from 2020 to 2030. The rise in numbers could be attributed to the pandemic that urged banking institutions and financial companies to adopt digitized payment solutions.
A payment processor is an organization that provides credit card processing, merchant account services, and other related products to businesses. The payment processor’s role is to provide these services while ensuring no fraudulent or erroneous charges on your company’s card statement.
When you sign up for a service with a payment processor, it checks your business’s information against fraud databases to make sure it can offer you the best rates possible for your business needs. Learn more about how payment processing works and how to choose one below.
What is a Payment Processor?
A payment processor is an institution linked in finance that processes credit, debit, and other transactions made online for merchants. The role of the processing company in the transaction process is to ensure that each party involved receives their agreed-upon compensation following an effective sale or business agreement between all parties.
A payment service provider (PSP) serves as an intermediary between customers and merchants by processing credit card payments.
The process completion occurs through various services, including merchant account management, transaction authorization, and settlement, which ensures that the payment effectively gets to its designated party without any errors or problems along the way.
Moreover, a payment processor may also be called a third-party processor as they are not directly involved with the transaction process. Instead, they act as an intermediary between cardholders and merchants or other third parties involved in selling goods or services.
Payment processors are also called payment service providers (PSPs), e-money issuers, electronic funds transfer (EFT) providers, etc., depending on their business model. They may act as sub-merchants, charging merchants for the transaction fees.
Merchants must manage their accounts to ensure that they are not paying more than is necessary by using contract clauses and setting up limits on how much of a fee can be charged per transaction or monthly total.
How does Payment Processing Works?
1. Payment for goods and services
A PSP offers merchants the ability to accept credit and debit cards as payment for goods or services, typically by swiping a customer’s card through a terminal. The merchant is also able to process electronic payments such as those made via e-checks or ACH transfers.
A PSP provides this service for merchants by charging them fees, including interchange rates, assessment fees, gateway charges, and so on, depending on their agreement with each specific company. Merchants must also pay setup costs and monthly or annual processing fees based on the average daily balance of all transactions.
2. Sending money electronically
Consumers can also use processors to send money electronically to individuals or businesses without using cash, check, or credit card at an agreed-upon exchange rate for a flat fee per transaction made through online payment systems like PayPal, Venmo, and Skrill. It is usually done with existing debit or credit cards, as these accounts already have the necessary funds available for use.
Depending on their compatibility with various PSPs and payment systems, setting up a processing account through different financial institutions such as banks, credit unions, and other qualified card issuers. Merchants must carefully research which company will best meet their individual needs before sharing any sensitive data.
Benefits of Payment Processing
Processing transactions with credit cards can be very profitable for businesses, but it does come at the cost of high fees. That is why many merchants are looking into different options that will allow them to accept payments without paying as much.
Here is a list of benefits that come with using third-party payment processing solutions for your business:
You can receive funds from customers at the end of each business day, so you do not have to wait weeks or even months before seeing your money. It gives small businesses a way to grow and expand quickly instead of having to worry about running out of cash because there could be issues with your bank or financial institution.
Lower Processing Fees
There are lower processing fees than traditional methods of accepting payments because the payment processor takes care of all charges and will provide you with one flat transaction fee, so there are no concerns about hidden costs.
Control to Business Operation
It provides you with more control over your business’s operation because it allows you to manage transactions and see reports of all types, which will help improve overall performance and ensure that everything is running smoothly;
Integration to Other Software
You can integrate payment processing into other software solutions, such as a shopping cart or a web store. This way, you can give your customers the best payment options, so they do not have to worry about using one method over another.
You will increase customer satisfaction by giving them more ways to complete their transaction without waiting for weeks before receiving funds from their purchase which is more common with traditional payment methods.
A payment processor can offer much more than just processing credit cards. Ensuring smooth transactions with no unnecessary fees is part of what they do. Using them entails benefits like flexibility and convenience needed in today’s online climate without sacrificing too much control or efficiency in managing payments.
If you have questions, or would like to talk about payment processing, grab time in my calendly: https://calendly.com/jayant-eproxim/linkedin.