The volume of online payments increased significantly over the years. Although it looks simple at the surface, payment processing is complex. It takes both technology and financial infrastructure to process the payments.
Consumers have several options to make digital payments on an online merchant platform or even a brick-and-mortar store. They can use a credit/debit card, Paypal, iDEAL in the Netherlands, Giropay in Germany, or Bancontact in Belgium.
Parties Involved in Payment Processing
The process of payment processing varies from one method to another, but the basic steps remain the same. Here a two primary parties always involved in payment processing:
- Consumer: They provide the card details on the merchant platform: online if it is a store on the internet or on the point-of-sale (PoS) machine if it is a brick-and-mortar store.
- Merchant: They are the seller of products or services who accept the payments.
A number of other financial and tech platforms also play a crucial role in moving the money from the consumer to the merchant.
Two financial institutions play a very crucial role in the entire payment processing. These are the financial institutions that handle funds of merchant and consumer.
- Acquiring bank: The financial institution that holds account of the merchant and manages and receives the payment from the consumer.
- Issuing bank: The bank or other financial services company that handles funds of the consumer. It might be holding the regular bank account of the consumer or a financial company which is providing credit.
There are several financial technologies involved in the online payment process. Their role varies depending on the mode of payment.
The two important players that keep online payments going are:
- Payment processor: These are massive financial services platforms that manage the network of payments (some examples are Visa, Mastercard and American Express). They move the transaction details from the card issuer to the acquiring bank, thus completing (or rejecting) the payment transaction.
- Payment gateway: They connect the merchant platform with the payment processor and handle the technical side of deploying the online payment system on the merchant’s store.
Steps Involved in Payment Processing
Several steps are involved in the processing of payment from a consumer to a merchant. Although the payment methods are different, the overall steps remain similar. Below is an example of the payment processing steps for credit cards:
- The consumer enters the credit card credentials on the payment gateway.
- The payment gateway encrypts the data and shares it with the payment processor.
- The payment processor checks with the card issuer (generally an issuing bank) if there is enough limit on the credit card for making the transaction.
- The payment processor approves (or rejects) the transaction based on the card issuer’s response.
- If the transaction is approved, the payment processor instructs the acquiring bank to credit the merchant’s account.
Macropay & Payment Processing
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Macropay provides an end-to-end service for integration of payment methods on online merchant platforms. Our services are focused on local payment methods and open banking technologies.