Are you eager to start your own business?
Well, then you’re probably already well-aware of the many things that you’ll need in order to do so safely and efficiently. One of which is making sure that you have a secure and reliable payment processing system.
Now, of course, depending on the type of payments you want to receive and how you want to receive such payments, payment processing can get very complicated.
Which brings us to the subject of today’s article: Payment Processing 101.
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Payment Processing 101
Cash payments are easy, direct, and so so simple.
But the same cannot be said for other payment methods: credit card payments, debit card payments, ACH checks, mobile payments, online payments, mail order payments, telephone payments, and so much more!
To process these kinds of transactions, merchants must have the tools required to:
● Accept the transactions easily
● Process payment information securely
● And, settle the payments quickly
Of course, throughout this seemingly simple process, the ‘virtual’ funds must also change hands safely until they are transferred from the consumer’s bank account to the merchant’s bank account.
Below, I’ve broken down all the key players, practices, and pieces that make the whole system work! Followed by a section on what you — as a business owner — need to consider when choosing the right payment processor for you!
The Key Players
In order to fully understand the ins and outs of processing, you must first familiarize yourself with all the different ‘players’ on the board. Some of these players are fairly obvious with their intent, but I’ve provided a quick explanation for each of them anyway!
- The Customer (Individual): The customer is the individual that is looking to buy the products or services that are for sale. In effect, they are the one that starts the payment processing process, as they must authorize the transfer of funds by providing their payment information at the point-of-sale. To do this, they partner with issuing banks (banks that provide them with their cards and transfer their funds to pay the merchant.)
- The Merchant (You): Merchants initiate the transfer of funds after the point of sale through credit card terminals, POS systems, virtual payment gateways & terminals, and more. To do this, they partner with other key players like acquiring banks to accept payments and merchant processors to transfer funds to their merchant accounts.
- Issuing Banks & Acquiring Banks (Financial Institutions): These two banks are two distinctive types of financial institutions that play a key role in transferring funds between the customer and the merchant. The customer is closely tied with issuing banks, who issue credit and debit cards to customers and transfer payment to merchants. And, the merchant is closely tied to acquiring banks, who hold the merchant’s bank accounts and receive the payments transferred by customers.
- Merchant Processors (third-party): Merchant processors are the ‘invisible’ middle-man that facilitates the payment processing by confirming the customer’s payment information and initiating the transfer of funds from the customer, to the issuing bank, and, finally, to the merchant through their acquiring bank. An example of one of these merchant processors is Platinum Payment Systems (PlatPay), which we’ll be introducing more thoroughly in the latter sections.
In the midst of all these players are tools and technology that allow for the smooth and secure transfer of payments. An overview of which is provided below:
Transferring funds is impossible without the right technology, and different types of transactions require different tools and techniques.
Thankfully, the merchant services industry simplifies this by providing merchants with all the tools necessary in order to initiate the transfer of funds. This technology can come in a variety of forms, but the most relevant are:
- Credit Card Terminals: A credit card terminal is a physical device that merchant processors sell/rent to merchants for credit card processing. These are used for in-house, card-present transactions where a customer is able to directly ‘swipe’ their card through the terminal to initiate the transfer of funds.
- Payment Gateways: A payment gateway is a piece of virtual software that acts like the ‘credit card terminal’ or ‘credit card swiper’ traditionally used for processing card transactions. This software can be integrated with your E-Commerce store or your website, and it is what will allow you to accept and process transactions online.
- Point of Sale Systems (POS Systems): A POS system is a delicate piece of software and hardware that is capable of facilitating the transfer of funds. It can also be a tool used to manage the day-to-day operations of a business. These are especially useful for businesses that want to track their sales, manage their employees, accept gift cards, create loyalty programs, track inventory, and so much more.
With the basics out of the way, we move on to the different types of merchant accounts that are available to satisfy the unique needs of the different types of merchants.
Types of Merchants
Now we get to the point where we talk about merchants. However, for now, all you need to remember is that different types of merchants require different merchant accounts:
- Brick-and-mortar merchants require retail merchant accounts
- E-Commerce merchants require online merchant accounts
- Mail order & telephone order merchants require MOTO merchant accounts
These different types of merchants are separated based on the type of payments they want to receive and how they want to receive said payments.
Of course, there are some merchants that mix and match. Like brick-and-mortar merchants that decide that they also want an online merchant account to open an E-Commerce store for extra revenue, or E-Commerce merchants that decide that they want a MOTO merchant account so that they can send their subscribers catalogs designed for mail-order transactions.
To account for this mixing and matching, there are merchant services providers like Platinum Payment Systems (PlatPay) that provide merchant accounts for retail, online, and MOTO merchants.
But, just remember, there is a clear distinction between how these different merchant accounts work! Which is why I’ve broken them down for you below:
Traditional Retail Merchant Accounts
The first type of merchant account available for merchants is a retail merchant account.
This type of merchant account is most useful for merchants who want to open a brick and mortar store and accept card-present transactions (where both the cardholder and the credit card is present to authorize the transfer of their funds.)
To facilitate these types of transactions, merchant service providers, also called merchant processors, offer payment processing equipment like credit card terminals or mobile card swipers that are used at the point of sale.
Of course, depending on the merchant services provider that you’re working with, the facilitation of fund transfer might be different.
Platinum Payment Systems, for example, offer their clients built-in chargeback and fraud protection with their retail merchant accounts. PlatPay also promise to save their clients 10-20% in credit and debit card transactions — that is, compared to how much they would have naturally spent if they processed the payments themselves.
Online Merchant Account
Online merchant accounts, of course, are meant for E-Commerce businesses.
These accounts work with card-not-present transactions (virtual transactions where the customer is asked to provide their credit card information and the physical presence ‘cardholder’ and the ‘card’ is not necessary.)
Such accounts are also available from merchant processors like Platinum Payment Systems, who provide their clients with the necessary hardware and software to process these virtual transactions. PlatPay also offers their clients added security to make up for the increased risk associated with card-not-present transactions.
For example, Platinum Payment Systems offer their clients built-in fraud and chargeback protection to protect their client’s own customers from phishing attacks and identity theft.
MOTO Merchant Accounts
The final type of merchant account that merchant processors deal with are for MOTO merchants (mail order & telephone order merchants.)
Much like with online merchant accounts, the processing for these types of transactions occurs through virtual terminals — provided by processors like Platinum Payment Systems — which can be installed on computers and used as a POS system for managing transactions.
It’s important to note that, despite mail order and telephone order transactions being considered ‘old school’, they’re actually more popular than you think! MOTO accounts are still used by wholesalers, as an example, who sell their products in bulk to retail stores. They’re also used by businesses who prefer to sell their products through catalogs, TV infomercials, etc.
And so, with that out of the way, we now move on to the next portion of this payment processing 101 overview, where we break down the merchant service industry by introducing the businesses that work behind-the-scenes to make sure that everything is going smoothly:
The Merchant Service Industry
The merchant service industry is rife with a variety of different processing services and financial institutions. Each one forming a piece of the puzzle, just another cog in the machine that allows customers to easily purchase goods from merchants with different types of payment methods.
Of course, the puzzle piece most relevant to small businesses are merchant service providers, whom we’ll be looking further into below:
Merchant Service Providers
It’s important to note that the term merchant services has come to mean so much more now than it did in the past. Evolving from its traditional roots — describing service providers that manage basic credit card transactions — and modernizing to become a broad umbrella term that describes a variety of tools, companies, and processors involved in payment processing.
Put simply, however, merchant service providers is a general term that describes the third-party vendors that allow merchants to accept and process all the different types of payment transactions that they receive — they offer the different types of financial services and tools needed to accept and manage transactions.
Which Merchant Service Provider Should You Choose?
There are tons of different merchant processors out there, and each one is unique in its own way. Some come with additional perks, some with more protection, some at lower costs, etc.
As an example, the merchant processor that I mentioned previously, Platinum Payment Systems (PlatPay), is known as a veritable one-stop-shop for processing all types of transactions.
That includes payment processing for credit and debit cards, online payments, ACH checks, mail orders, telephone orders, fax orders, mobile payments, and so on. They also offer payment processing management and support for businesses interested in setting up recurring billing, subscriptions, and POS systems for their store.
And, Platpay also deals with a variety of clients: teams that offer coaching, consulting, or hosting of events; retail merchants that want to accept Card-Present transactions; merchants that want to accept MOTO payments; and, of course, E-Commerce merchants that want to accept online payments.
There are other payment processors and merchant service providers available in the market, of course. Some of them you probably would have heard of already. Like PayPal, which offers payment options at multiple levels of processing.
In the end, however, which merchant service provider(s) you choose will depend solely on what your business needs. Whether it be an all-rounder like PlatPay, a powerhouse like PayPal, or something more obscure and suitable for businesses with very specific needs.
About Platinum Payment Systems (PlatPay)
To tie everything all together and review all that we’ve talked about so far. Let’s break down what you, as a business owner, should come to expect from the merchant service provider that you decide to work with.
For this, I’ve chosen Platinum Payment Systems (PlatPay) as my illustrative example.
According to one of their founding members, Jed Morley, Platinum Payment System sets itself apart because of its goal to: “Help others solve their payment processing problems and support them with whatever else they need to handle the risks and balance the different types of payments they receive.”
Something Platinum Payment Systems claims to have achieved by offering excellent customer support — which Platinum Payment Systems is well-known for — and ensuring that their clients are able to find themselves out of even the most difficult of financial crises.
Jed Morley has played a key role in PlatPay’s growth since 2008, and he claims that he takes pride in the fact that PlatPay is considered an ‘industry leader’ in “managing and solving payment issues during periods of major economic shifts.”
That is what Jed Morley believes a merchant service provider should do: provide support in all manners of financial situations. Something all the more vital because he, and the rest of PlatPay, believes that “…everything in business revolves around payments.”
The Bottom Line: Payment Processing in a Nutshell
Payment processing is a complex process, but it’s a necessary one.
For customers, it’s just there to provide a convenient way of making purchases outside of regular cash payments. But, for aspiring business owners, having a reliable third-party payment processing service at their back is a must.
Now, if you still have questions about payment processing for your business, you might want to try and approach the people that are working in the industry.
That is, if you’re a business owner looking to make your mark with a solid payment processor backing you, then you best put yourself out there! There’s no reason to hesitate. Merchant processors like Platinum Payment Systems (PlatPay), or the hundreds of others available in the market, will not shy away from answering your burning questions and will be more than happy to help you on your way!