If you’re like most people, you probably don’t fully understand the different payment processing terms and definitions. From merchant accounts to interchange fees, to credit card processing- there are a lot of terminologies that can be daunting if not understood. We want to help break down these concepts so that you can make more informed decisions when it comes to your business. Here are some keywords and phrases that will get you started:
Merchant Account
A merchant account is a bank account that is specifically used to process payments for goods or services. It is important to note that a merchant account is different from a regular bank account, and should only be used for business purposes. When you open a merchant account, you are provided with a merchant ID and a secret key, which are both used to authorize transactions.
Credit Card Processing
Credit card processing is the ability to accept payments from customers through credit or debit cards. This can be done in a variety of ways, including online, over the phone, or in person. In order to accept payments through a credit or debit card, you will need to have a credit card processing gateway.
Interchange Fees
Interchange fees are the fees that are charged by the credit card company when a credit or debit card is used to make a purchase. These fees are set by the credit card companies and vary depending on the type of card that is used. For example, a Visa credit card will have a different interchange rate than a Discover debit card.
Settlement
The settlement process is when funds from approved credit card transactions are deposited into the merchant’s bank account. This usually occurs within 2-3 business days of the transaction being approved.
Chargeback
A chargeback is a request by the customer to have the funds from a previous credit card transaction returned to them. This can happen for a variety of reasons, such as if they did not receive the product or service that they paid for, or if they believe that they were overcharged. Credit card processors will often charge merchants a fee for chargebacks that occur.
Recurring Billing
The ability to charge customers automatically for products or services on a regular basis is known as recurring billing. This can be done through a gateway, or by using a third-party billing provider. Recurring billing is a great way to increase sales and build customer loyalty.
Payment Processors
A payment processor is a company that helps businesses accept payments through a variety of methods, including credit and debit cards, electronic checks, and PayPal. There are a number of payment processors to choose from, so it is important to do your research and find one that best meets your needs.
Payment Methods
Credit and debit cards are the most common types of payment methods, but there are many others that can be used as well. These include PayPal, Apple Pay, and Android Pay. Each payment method has its own set of rules and regulations that must be followed in order to accept payments. For example, in order to accept payments through PayPal, you will need to create a PayPal account and configure it with your website.
Payment Gateways
Gateway Payment gateways are platforms that link a business’ website to the payment processor. Payment gateways provide security for online transactions by ensuring that sensitive credit card information is encrypted and sent across the internet securely. Payment Gateways also protect against fraud by flagging suspicious activity, such as a large number of purchases or geographical location that differs from the billing address. There are three types of Payment Gateways:
Hosted
A hosted payment gateway is one where the payment gateway software is provided by the credit card processor. This type of gateway is generally more simple to set up and requires little to no technical.
Self-Hosted
A self-hosted payment gateway is when the business owns and operates the payment gateway software themselves. This type of gateway requires more technical knowledge to set up but can offer more features and flexibility than a hosted gateway.
Third-Party
A third-party payment gateway is when the business uses a payment gateway provider who then connects to the credit card processor. This type of Payment Gateway can be more expensive but can offer more features and support than either a hosted or self-hosted gateway.
Soft Authorization
A soft authorization is when the credit card processor approves a transaction, but does not actually charge the customer’s card. This type of authorization is often used to verify that the card is valid and has enough funds available.
Hard Authorization
A hard authorization is when the credit card processor charges the customer’s card for the amount of the transaction. This type of authorization is used for transactions that are approved, such as online purchases or phone orders.
On-Behalf Payment Authorization
On-behalf payment authorization is when the credit card processor approves a transaction, but instead of charging the customer’s card, they charge the business. This type of authorization is often used for subscription services or recurring payments.
Payment Security and Fraud Prevention Payment
Payment security is vital for businesses that accept credit cards. When you buy something online or in-person, the payment details are sent to your credit card company through a secure server. This enables them to verify that the transaction was authorized and does not appear fraudulent. Since this process requires sensitive information to take place, it’s important to use a secure server when submitting any personal information over the internet.
The Payment Processor will protect credit card data until after your purchase is completed but they can’t prevent all types of fraud alone. For example, if someone steals your card number and uses it without your knowledge there’s nothing that can be done about it unless you report it immediately. Your best bet is to contact your Payment Processor and inform them of the fraudulent purchase.
Single-click purchasing
A customer inputs their credit card information just once when purchasing an item, making it more likely they will purchase again without needing to enter their payment details again.
Tokenization
This replaces sensitive data such as credit card numbers with unique “tokens” so that a Payment Processor never sees the actual credit card number. This reduces the risk of any sensitive information being stolen as it is less likely for hackers to find tokens than full credit card numbers.
Authorization
The Payment Gateway takes a percentage or flat fee from each transaction that goes through, including those that are declined. The Payment Processor then pays this fee back to the Payment Gateway after the transaction has been completed and only if there was no fraud involved in the process.
How Payment Gateways and Payment Methods Affect You Global online shopping has made it easier than ever to buy anything you want without having to leave your home — but what happens when your country’s Payment Method isn’t accepted?
These days most people don’t carry cash with them, meaning that they need to rely on Payment Gateways and Payment Methods to make purchases. However, if your Payment Method isn’t accepted by an online retailer (or even a local store) then you may end up having to go somewhere else or do without whatever it was you wanted.
Alternative Payments – Apple Pay, Android Pay, Crypto
Alternative Payment Gateways are the most common Payment Gateway around. Because they allow for direct bank transfers or online payments outside of the normal credit card system, customers can use them even if you don’t accept their preferred Payment Method.
Cryptocurrency
An anonymous payment application that uses cryptography to secure financial transactions, making it virtually impossible for anyone to copy and use your payment information. It’s easier than Payment Methods to use and saves time, but it is rather difficult for businesses that accept them to integrate into their Payment Gateways.
Apple Pay
A Payment Method that allows customers to purchase items without having to enter their payment details each time. The user simply has to add their supported cards to their Payment Profile and keep them there.
Android Pay
This Payment Method works much like Apple Pay but is only available for Android devices. Like Apple Pay, it allows for one-click purchasing so you can buy things without having to enter your payment details every time.
Payment Options for Local Websites – Card Readers and Mobile Apps
If you’re running a local website (like an online store or even your bakery’s website), Payment Gateways make it easy for you to accept all Payment Methods. For example, business owners who sell things like t-shirts can use payment gateways like Stripe to make their Payment Methods more secure.
Businesses that sell food items can also use Payment Gateways with mobile apps so customers can pay on the go without having to stand in line or carry cash. These Payment Gateways also have features that allow for one-click purchasing and tokenization, making them easier than ever before for customers to purchase items from your site!
Card Readers
In order to accept Payment Methods on a local level, you’ll need a Card Reader of some sort. These can be either attached to your computer or a portable device that connects via USB and accepts all major Payment Methods for in-store purchases. If you’re going to use a mobile app-based Payment Gateway, then you may also want to look into accepting Apple Pay and Android Pay over NFC so that customers with mobile devices can tap their phones instead of swiping them.
Mobile Apps
If you have an iOS or Android phone or tablet, then there are applications available for both Payment Gateways and Payment Methods. In most cases, these apps will allow for one-click purchasing from your website while eliminating the risk of having Payment Methods intercepted. These apps can also save time and make it easier for international customers to pay you as well!
What is a Merchant Category Code (MCC)?
Merchant Category Code (MCC) is a four digit code that classifies businesses into different categories based on the type of products or services they offer. This information is used by credit card companies to help identify fraudulent activity.
MCCs are important for businesses because they help classify the company into a certain category. This classification then determines what type of credit card processing services the company is eligible for. For example, a company that sells clothing would have a different MCC than one that sells computers.
Conclusion
Payment Processing is an important part of the e-commerce process. Payment gateways are responsible for securely managing online transactions while Payment methods determine how customers will pay you. Payment Gateways can be set up to accept all Payment Methods, or they may only use certain types that correspond with your location and business type.
If you’re looking to start accepting payments on a local level without having access to any Payment Method, then you’ll need a Merchant Account from an MCC which includes these Payment Methods. It’s also worth noting that payment processing options vary by country so before selecting one it’s important to explore what each option has to offer!
Hopefully, this gives you a better understanding of some of the more common payment processing terms. If you’re still confused about something, be sure to ask your credit card processor or bank for more information. And as always, keep up with our blog for more helpful tips and advice!
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