People in this modern era are giving importance to online transactions. Therefore, if you are a merchant, you should definitely embrace this online payment processing ecosystem. There are certain things that have an inextricable connection with online payment processing and it makes the entire ecosystem complicated. New merchants will have problems understanding the ecosystem of online payment processing. Rapidcents understand this very well and this is why here, we have made a brief breakdown of this online payment processing.
The online payment processing industry looks pretty simple on the surface. However, there are many parties involved in this seemingly basic process. So, what those participants are.
- Cardholder: The cardholder is the person who owns the credit card used to make a purchase.
- Merchant: The merchant is the business that sells the products or services to the cardholder.
- Acquirer: The acquirer is the merchant bank that processes the credit card transactions on behalf of the merchant.
- Credit Card Brand: Credit card brand or networks such as MasterCard and Visa is also an inextricable part of this process. This element processes the credit card transaction.
- Issuing Bank: Well, the issuing bank plays a very important role. It is the financial institution that issued the credit card.
Online Payment Processing And How It Works
Are you having trouble understanding your merchant account? Well, as an online merchant, you will not have to know every little detail about online payment processing. You just need to know enough to delegate the task to a payment processor that will take care of everything. However, it is very essential to understand the fundamentals so that you can properly make a merchant provider selection.
Now, you might be wondering how online payment processing works. Well, first, the customer presents a card to the merchant for purchasing services or goods. After the card is swiped into the point of sale software, the processor sends it out for authorization through the payment processing network. The issuing bank approves or declines the credit card transaction based on available funds. The transaction is then passed through the electronic networks to the payment processor and the point-of-sale device gets the approval code at the merchant location. The issuing bank sends the money to the processing company in order to reimburse them for the purchase that was made. Well, in a matter of seconds, the entire process gets completed. At the end of the day, the merchants send all the transactions referred to as a batch to the payment processor. Processor deposits the money to the merchant bank account.
Tiered Pricing And Interchange Plus Pricing
When it comes to online payment processing, you must know about tiered pricing and interchange plus pricing. These two pricing models are very popular in the ecosystem of online credit card processing. Talking about the tiered pricing, it is very easy to understand. Your merchant processor will let you know about the standard transaction rate. After that, the processor will use the same formula to charge each transaction. ‘Blended Pricing’ is another name of tiered pricing and merchants start their business with this pricing model. It is very simple but less transparent. Therefore, when business grows, merchants look for the most transparent pricing model. This is where the interchange plus pricing model comes into play.
Interchange plus pricing structure is very transparent in nature. But, it is more complex than the blended pricing model or tiered pricing structure. In this case, the payment fee consists of the following fees:
Now, the issuing bank gets the interchange fee whereas the credit card network gets the assessment fee. Gateway fee, processing fee and the acquiring fee are there for the merchant payment provider. Now, the assessment fees and interchange fees taken by the credit card network and issuing bank respectively are a very dynamic nature. There are certain parameters such as type of card used for the transaction, mode of transaction and many more that set the rate of these fees. There are different rates for in-person transactions or card-present-transaction and online transactions or card-not-present transactions. Moreover, the assessment fees depend upon the type of card customers use while making purchase. It can be either a consumer card or a business card. So, the pricing in the case of the interchange plus model is not static at all.
Benefits Of Online Payment Processing
So, will you get any benefits after embracing such a complicated ecosystem? Yes, there are endless benefits that you can achieve. First of all, you will have a strong customer base and you will realize that it is boosting the cash flow in your business. You can easily take your business to the next level.
Not A Rapidcents Merchant?
Rapidcents is a well-known merchant processor. If you want to enable an online payment processing system in your business, you can go with this merchant payment processor. This platform is secure and reliable. Moreover, it adds complete value to every online transaction. So, join this as early as possible.
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