Merchant processors are crucial for accepting payments for the goods and services you’re selling online. But, how exactly do they work? And, what do you need to know to pick one for your online retail store?
A merchant processing service provider is the ‘middleman’ between your business, the banks, and your customers. With a good merchant processor, you can quickly, and easily, accept your customers’ payments through their preferred payment method of choice — without ever worrying about the efficacy or security of the transaction.
That is why merchant processors are crucial for merchants that are in the process of building — or have already built — an online retail store.
More on merchant processors below, as exemplified by Platinum Payment Systems, one of the most prominent leaders in the merchant processing industry.
What is a Merchant Processor?
Traditionally, a merchant processing service provider functions as a strict intermediary that allows merchants to confidently accept payments through credit or debit cards.
These merchant processing service providers sell credit card terminals and mobile swipers that are technologically designed to automatically facilitate the transfer of funds from the customer’s bank account to the merchant’s bank account.
This traditional method of processing payments is incredibly similar to the one used by online retailers. The only difference is that online payment processing involves Card-Not-Present transactions — which we’ll be describing in more detail below:
Merchant Processors for Online Retailers
Modern merchant processors like Platinum Payment Systems, give merchants the option to do exactly what traditional merchant processors do, except they do it virtually.
So, rather than physical credit card terminals and mobile swipers, merchant processors like Platinum Payment Systems integrate with your eCommerce store and allow you to remotely accept online payments, mobile payments, phone payments, and so on.
These types of transactions, called Card-Not-Present (CNP) transactions, are done entirely through virtual terminals. It’s important to note that CNP transactions are usually more expensive and less secure than traditional payment processing methods.
Although, with a good online merchant processor, you shouldn’t have to worry about either of those things. As they will ensure that your payments are being processed at the proper rates and at little to no risk to you.
After all, as one of the managing founders of Platinum Payment Systems, Jed Morley, has said, the goal of most merchant processors “…is to help others solve their payment processing problems.” Meaning, it’s their responsibility to make sure that your customer’s payments are being processed successfully so that you can get back to focusing on growing your business!
How Do CNP Transactions Work?
To go in a little further detail on online merchant processors like Platinum Payment Systems, we’ve broken down the standard CNP transaction process below:
- Step 1. Card Information: A CNP transaction starts with the customer inputting their card information through a virtual payment gateway. This includes their account number, card expiration date, contact information, and other relevant identifying information.
- Step 2. Information Processing: The information inputted by the customer is then processed by technology from the merchant processor. This step must be done in accordance with PCI standards and through high-quality end-to-end encryption to protect the customer’s information.
- Step 3. Payment Confirmation: To prevent fraud and to identify that the purchase was, in fact, legitimate, the merchant processor has to ‘confirm’ the transaction (varying tools and methods are used by merchant processors in order to accomplish this step.)
- Step 4. Payment Authorization: Finally, the payment must be authorized by the customer — who must input their card verification number or security code (the three or four digits located on the back, and occasionally, on the front, of a card) to prove that they own the card.
- Step 5. Payment is Settled: Once the customer’s side of the transaction is done, there is usually a 24-hour delay (for when the merchant processor processes the customer’s authorization of the payment) before it can be settled for good.
Note, this standard process will not necessarily be the same for every merchant processor, but it’s a general guideline of the methods used by most of them.
Conclusion: Should You Work with a Merchant Processor?
Take it this way, if you choose to work without a merchant a processor, it is impossible to efficiently and securely, process virtual payments from your customers.
On the other hand, with a good merchant processor on your side, you can expect not only the smooth processing of payments but also some much-needed support with protecting your business from fraud and securing your customer’s private information.