Have you ever made it all the way to checkout at a store or restaurant, only to hear the cashier say the words, “I’m sorry, we only accept cash”? And there you stand, card in hand, with nothing left in your wallet but your ID and some loose change. You’re then faced with the inconvenient task of finding a nearby ATM to pay for your meal or items.
As a business owner, surely you don’t want your customers to have this experience. It’s not good for business. Fortunately, there is a solution! To offer the best payment experience to each customer, all you need to do is invest in payment processing.
Key Takeaways You Will Get From This Article
1. Payment Processing is the series of steps required to authenticate and approve a transaction, followed by the steps that move the funds from the cardholder’s account to yours.
2. When a customer makes a non-cash payment to your business, there is an involved behind the scenes process that takes place.
3. The main reason why businesses need payment processing is to be able to accept credit card payments, either in store or online.
4. If your business needs payment processing, start by securing a Merchant Account and finding a reliable Payment Processor.
In this post, we’ll answer four initial questions about payment processing to help you understand exactly what it is, and what it means for your business. Start reading from the top or click on your specific question below!
- What is Payment Processing?
- How Does Payment Processing Work?
- Why is Payment Processing Important for My Business?
- How Do I Get Started?
What is Payment Processing?
As you may have guessed, we’re going to use the words “payment processing” quite a bit in this blog post. To put us all on the same page, here’s what we are referring to when we say payment processing:
Payment Processing is the series of steps required to authenticate and approve a transaction, followed by the steps that move the funds from the cardholder’s account to yours.
Any transaction that does not involve cash or a check payment needs to be processed. So, if you want to give your customers the option to pay by credit or debit card, electronic check, or mobile wallet, your business needs payment processing.
If your business needs payment processing, start by securing a Merchant Account and finding a reliable Payment Processor.
A Merchant Account is a special type of bank account that will allow your business to accept credit cards. Without one, there simply won’t be anywhere for your hard-earned money to go.
It’s important to note that you won’t have direct access to this account itself. However, the funds that make their way through here will be automatically transferred to your business banking account.
If that sounds confusing, here’s an analogy that might help.
Think of your merchant account as an airport, where a payment moves through much like a passenger with a connecting flight.
When a customer uses their credit card to make a payment, those funds board a plane that lands in your merchant account. Once there, the funds wait patiently for a bit and then board a different plane to your business bank account.
To start processing credit cards, you’ll also need a Payment Processor. Your payment processor will manage the transaction process by transmitting information from your customer’s credit card to their bank and then to yours.
If your customer has sufficient funds in their account, the transaction will be approved, and your processor will send the payment through the process to you. Your processor is also responsible for monitoring and handling issues such as credit card fund limits, credit card validity, security, and so on. Therefore, it’s imperative that you partner with a reliable, reputable processor.
Before we move on, there is one more definition we need to explore – a Payment Gateway.
A payment gateway is technology that will help you securely accept credit card payments online and/or in your store.
The main purpose of your gateway is to guarantee that all information is transferred securely from your customer to you. It adds an additional layer of protection to your business and will help ensure your hard-earned money ends up where it belongs.
Next, we’ll talk a little more in-depth about the steps involved with processing payments.
How Does Payment Processing Work?
When a customer makes a non-cash payment to your business, an involved process takes place behind the scenes. There are more parties involved in these types of transactions than you might realize. In fact, there might be as many as eight parties involved, including:
- The customer
- The merchant (that’s you!)
- The credit card network
- The payment processor
- The payment gateway
- The merchant account
- The customer’s bank
- Your bank
Now, the number of parties involved in each of your transactions will vary depending on the type of payment and the processor you have chosen. Some payment processors (like Electronic Merchant Systems) offer merchant services solutions that can include your payment gateway and merchant account.
In general, however, a payment follows these steps:
- A customer places an online order or makes a purchase from your business.
- The customer’s card information is sent to your payment gateway, which transfers it to your payment processor.
- Your payment processor will then send the transaction information to the customer’s credit card network to verify their card details.
- Once verified, the credit card network requests authorization from the card-issuing bank to release your customer’s funds.
- The issuing bank confirms that your customer has sufficient funds in their account, checks to make sure the transaction is not fraudulent, and submits a response to the credit card network indicating whether or not the transaction is approved.
- This information is sent to your payment processor, who will request the transfer of funds from the issuing bank to your merchant account.
- After the funds have been delivered to your merchant account, they’ll remain there while your payment processor runs their final security checks before transferring the funds to your business bank account.
If you have chosen an efficient payment processor, this entire process can be completed in a few business days or less.
Next, let’s talk about why payment processing is important for your business.
Why is Payment Processing Important for My Business?
The main reason why your business needs payment processing is obvious: to accept credit cards! Here are some other reasons why payment processing is essential for businesses today:
- It gives your customers more options to pay, which improves their experience with your business.
- Payment processing allows you to make sales online; a convenient option that has gained incredible popularity during the pandemic.
- When you start processing credit cards, you’ll need to have less cash on hand. This reduces the risk of your money being lost, stolen, or miscounted.
- Processing payments through your merchant account can help you streamline accounting processes, especially if you have access to online reporting and analytics.
- Accepting credit cards can hasten checkout speeds for your business, allowing you to serve more customers in a day!
These are all great reasons to invest in payment processing, but the ultimate reason is that many of today’s consumers simply aren’t carrying cash.
Some find cash cumbersome or choose not to carry it for security reasons, and others choose to pay by card simply because it’s more convenient – no trips to the bank necessary!
Regardless of the reason, it’s important to acknowledge that fewer people are carrying cash. To stay relevant and competitive, your business needs to be equipped to process credit cards.
How Do I Get Started?
If it’s time to start processing payments, you are in the right place!
Electronic Merchant Systems has been helping small to mid-sized businesses realize their full potential since 1988. Our mission is to be the industry-leading payment processor and merchant services provider that empowers merchants like you to increase their financial well-being. As such, we provide customizable payment applications designed to enhance profitability.
Headquartered in Northeast Ohio, EMS currently employs sales offices and agents in over 100 U.S. cities. Wherever you are, you can always count on our innovative suite of business solutions, high-quality service, and professional, dedicated support.
If you’d like to learn more about processing payments with EMS, please contact us!