How electronic payment processing works: the stages and participants in the process

Each year internet business develops more actively and expands its possibilities and boundaries. In addition to considerable convenience for customers, when everything they need can now simply be selected online, e-commerce offers many advantages for merchants as well. More and more businesses are thinking about moving into e-commerce, where many are faced with the question of how to structure the acceptance of electronic payments in a way that is safe and convenient for both the seller and the buyer.
To help you understand this complex issue, here is an in-depth look at what goes into payment processing and who is involved.

Payment processing: what is it
Processing is an automatic technology of electronic money transfers from buyer to seller. It is built on software that can only function thanks to the power of electronic banking. Through this software, payments made with bank cards and e-wallets are verified and processed and, as a result, these transactions may be accepted or rejected. This happens with every payment for goods or services, even when you, for example, just pay with a bank card through a terminal in a grocery store.

That is, in fact, processing is the verification and subsequent processing of your plastic card details. If this processing is successful, the money is debited and credited to the account of the store or company where you purchase services.

Processing is provided by processing centers, the most famous of which belong to Visa and MasterCard. They work around the clock as they process payments around the world every second.

The process of accepting bank payments is called acquiring, and it is closely related to processing. Acquiring is the process that takes place before the payment itself is processed, that is, when your bank card data (its full number, expiration date, CVC code) is sent to the payment processor.

How does the payment processor work?
Processing center or payment processor is a system, by means of which operations with bank cards are processed. It is responsible for accepting payments from online stores and coordinates all possible payments between the issuing bank, store and cardholder or acquiring bank. It also performs a number of other important functions, such as supporting the processing of authorization requests and protocols, in which it records all transactions with the card. If the issuing bank does not have its own database, the payment processor also saves information about cardholder limits.

Besides the processing center provides the merchant with its own programs, which should be installed on the site. Using a processing center is the most convenient method of organizing electronic payments for an entrepreneur.

Payment gateway and payment processor: not to be confused
It is important not to confuse a payment processor with a payment gateway because they are not the same thing. The processing center analyzes and transmits payment data, while the payment gateway is responsible for the accuracy of information provided. It is the payment gateway that makes the decision to allow or deny a transaction based on the data received. Without a payment gateway it would be impossible to carry out a transaction on the Internet.

Visually, payment gateway is a page where customer enters his payment data. Upon receiving this data, the payment gateway encrypts it and transmits it through a secure channel so that it cannot be captured by hackers, which uses antifraud filters and complex automatic rules.

The gateway also decides in the background whether to approve or reject the transaction and communicates its decision to your site, resulting in the transaction being passed or rejected. Reasons why transactions may be rejected are usually related to

  • Freezing of the account;
  • A lack of funds in the account or a reached transfer limit;
  • Information that the card has been lost or stolen;
  • An incorrect expiration date or card number.
Usually for convenience the payment gateway is included directly in the processing software.

How bank card processing works
Although processing takes only a few seconds, it consistently involves several actors and consists of a large number of small operations. Let's start by listing the participants:

  • The seller of the good or service;
  • Issuing bank - the bank that has issued the buyer's card;
  • The acquiring bank - the bank that accepts payments from the buyer;
  • Processing center - organization that processes payments;
  • International payment system - Visa or Mastercard;
  • Buyer of goods or services; cardholder.

Now let's move on to payment processing, which consists of several steps:

  • The buyer pays for a product or service on the site.
  • Transaction data is sent to the payment processor server.
  • The payment processor's security systems check the received data. If there is nothing suspicious in the transaction, the data will be transmitted to the acquiring bank, while the merchant will receive notification that the payment was successful. If the activity appears fraudulent, the payment will be blocked and the card that was used to make the purchase will be blacklisted.
  • The acquiring bank, having received the necessary data about the payment, requests a check of the buyer's balance from the issuer.
  • The issuer notifies the payment system and the acquirer of the check results.
  • The processing center receives a positive response from the issuing bank, which is confirmed by a unique code, or the transaction is rejected.
  • The merchant receives notification of the payment status from the processing center.
  • The buyer is informed that the payment was successful.

Connecting Processing
It's easy to set up processing, but you should meet a few requirements:

  • The merchant's site must contain consistently working options for secure payments.
  • The site should meet the requirements of international payment systems such as Visa and Mastercard.
  • The site must contain company data, a description of the privacy policy, delivery and return policies, and terms of use.
  • In order to be safe for visitors the website must follow the HTTPS protocol.
  • The seller's business must not go beyond the restrictions of the law.
If you are planning to work on the CIS market, you need to register an IE or LLC for a stable payment acceptance, as most popular payment systems have such a requirement for those who want to accept payments in their store. Next, it is necessary to choose and connect a suitable payment gateway, which should not be difficult if your business is white and transparent.

The most popular foreign payment processors for connecting are Stripe and Paypal. We told you about how to connect to accept payments from abroad in one of our articles. However, foreign processors, as a rule, do not work with businesses from Russia and the CIS, so you need to register your business abroad, which requires time and money investment.

Nevertheless Easy Payments team will help you to solve this problem without extra expenses. We will help you connect Stripe to your website or online store, and then you will be able to accept international bank payments quickly and securely.

Which payment processor to choose?
To summarize, let's note that if you have decided to organize a business on the Internet, you cannot do without setting up a payment processor.

It is also worth mentioning that the choice of payment processor is very important - for example, when working with PayPal there are many risks of freezing your account or blocking the funds on your account. When choosing between PayPal and Stripe, we usually recommend Stripe, because with this processor there are no such problems, and neither the stability of the business nor its profitability is threatened.

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