What Is a Secure Payment System?

Payment fraud is increasing, and U.S. consumers experience more fraudulent transactions than shoppers in other countries. Secure payment systems safeguard customer information, which is essential to mitigating the risk of credit card fraud and protecting your business’s reputation.

Implementing trusted payment processing software improves financial transaction integrity. Moreover, it proves to customers that your small business can handle data protection and security just as well or better than that of your competitors. In this article, we define the components of a secure payment system, provide examples, and discuss how to choose trusted payment services.

What are secure payment systems?

A secure payment system (SPS) refers to the technologies, infrastructure, and policies that protect sensitive information. It keeps personal data and credit card details confidential and prevents unauthorized access during checkout, ensuring safe processing, transmission, and data storage.

What makes a payment system secure?

An SPS works by applying encryption, tokenization, and authentication. The infrastructure consists of many components. While some elements are mandatory across all platforms and systems, others are specific to certain industries or apps.

How do SPSs protect businesses and their customers? For starters, encryption is a fundamental component of payment security. Electronic processing — whether through an Automated Clearing House (ACH) transfer, in-person credit card payment, or e-commerce purchase — scrambles information into unreadable text. Even if hackers access the data, it's unintelligible.

Tokenization increases security and occurs before encryption when using payment gateways, EMV chip cards, contactless payments, and digital wallets. It replaces sensitive information like credit card numbers with a token, a unique identifier without any exploitable value, meaning it's worthless to malicious actors.

Authentication methods prevent unauthorized purchases by verifying the user's identity. These vary by payment method. For instance, in-person sales require a signature or four-digit PIN. Credit card networks use 3D Secure for online transactions, which may ask for a PIN, password, or 2FA verification.

Mobile payment systems like Google Pay and some digital wallets use biometrics (touch ID or face ID) and device authentication. These methods confirm the payer's identity by scanning facial or fingerprints and reviewing the hardware's profile.

Fraud detection services monitor financial transactions for suspicious activity. Payment processors often have built-in fraud protection systems and may offer add-on tools for high-risk industries or locations. The systems analyze data and patterns to flag or halt unusual transactions.

Lastly, bank or processor-specific systems may take additional steps to confirm the payer's identity before processing a financial transaction. These may include a one-time password or fingerprint scan.

How to choose a payment system

Credit card processors play a significant role in payment system security. The best services partner with your business to fight fraud while delivering excellent checkout experiences. When choosing a payment provider, consider your company's sales channels, accepted payment methods, and risk posture.

See if the processor offers resources or assistance with small business PCI compliance. Also, review their dispute resolution process, fraud detection systems, and customer support options.

Why businesses should prioritize financial transaction security

Fighting fraud isn't easy. But can you afford to lose money and your customers' trust?

The AFP survey found that 30% of organizations couldn't recover funds lost due to payment fraud, whereas 41% retrieved at least 75%. Data breaches, chargebacks, and negative reviews impact your company in countless ways, from the time it takes to respond to clients or follow data protection regulations to operational costs and losses.

Using an SPS and implementing strategies reduces these risks. With the right payment processing partner and a multilayered approach, you can deliver excellent customer experiences while fighting fraud. Best-in-class tools give you a competitive edge and protect your reputation. Instead of putting out fires, your team builds stronger customer relationships. Source

How to Select the Best Credit Card Machine for Your Business

In 2024, if your eCommerce or brick-and-mortar store doesn’t offer credit card payments, you might as well be living in the Stone Age. With Americans making an average of 186 credit card transactions a year, and credit card payments being the most popular in-store payment method, it’s a given that you have a point of sales system that accepts card. But with seemingly endless payment solutions to choose from, it’s easy to get overwhelmed and uncertain.

Before you choose a credit card reader or POS system, you need to have a good understanding of your own business, to see if your potential payment solutions provider offers features that meet your needs. Some questions to consider include:

• What type of transactions do you mostly carry out? Are they in-person, online, or mobile? If they’re mostly online, you might want a provider that focuses on eCommerce, while if they’re mobile, you would want a strong contactless payment solution.

• How many payments do you average per year? For example, some credit card processing companies may charge you based on your annual sales volume, so it’s good to know.

• What’s your typical transaction size? Again, since a (variable) percentage of your sales will go to the payment processor, it’s good to be upfront to see if you can negotiate more competitive fees.

Types of Credit Card Machines

Not sure what’s available when looking for a credit card reader? Here’s a quick breakdown.

• Traditional countertop terminal: This is the traditional EMV terminal with a pin pad, used for in-person payments. You can tap, swipe, or insert your credit or debit card at the checkout counter to make a purchase. Newer models use near field communication (NFC) for contactless payments like Apple Pay or Google Pay.

• Mobile card readers: These payment terminals are designed to be taken on-the-go (like Square terminals) and can, for example, be used by food trucks, or be brought to the customers’ table in a restaurant. Meanwhile, wireless terminals can complete payments without needing a separate mobile device.

• Virtual terminal: These card readers use software to accept card-not-present transactions: in other words, online payments or payments made over the phone (like if you’re ordering takeout). It’s a great option to have to ensure flexibility and convenience, especially in a pinch.

Key Features to Look Out For

As you start narrowing down the potential credit card machine providers, here are a few important factors you should be aware of and research before signing on the dotted line.

Security features

You’ll be handling a lot of money, so you want to make sure you have the payment security fundamentals down to protect your business and customers. First, ensure you have an EMV card reader, as most cards today are EMV chip cards, which are the more secure option.

Then, make sure your provider is PCI compliant (these are standards set in place by card associations to ensure payment data is properly processed, stored, and transmitted.) 

Connectivity options

How will your card reader go online? If you’re operating in a small space, just Bluetooth might be fine, but if you, it’s always good to have WiFi connectivity just in case. Meanwhile, if you have a whole POS terminal setup or process a lot of payments, you might want to have Ethernet as an option to ensure minimal connectivity issues.

Integration with existing systems

Make sure your new provider adapts and streamlines your current workflow. That way, you’ll be set up for success. To do that, find out what software and services can be integrated with your future payment processor, and if they have publicly-accessible APIs in case you have manpower to create custom integrations. Make sure the sky’s the limit!

Fees structures

Another important element to take into account is the pricing for using a credit card processor: are there hidden costs like start-up, early cancellation, or monthly minimum fees? How competitive are the transaction fees and processing rates? 

Customer support

How easy is the payment processor to use and set up? Is it easy to reach a real human and get support? If something goes wrong, how fast is it to solve? See what real customers have said on independent sites to determine how committed your potential payment processing provider is to taking care of its clients.

While this might feel like a lot of info, remember: finding the perfect credit card reader for your small business doesn’t have to be a labyrinth to navigate. By understanding your business needs and the key factors you should look out for, you’re well on your way to making an informed choice to help grow your brand.  Source

How To Use Credit Cards Wisely For A Vacation Budget

Whether you’re planning a weekend getaway with friends or an affordable vacation for a large family, your credit card can help you plan sustainably. 

Taking a break for a vacation can do wonders for your stress level, but the costs associated might not. With the right planning and smart use of your credit card, however, you can create a realistic travel budget so you can enjoy the fun of your vacation worry-free.

Take advantage of welcome offers

If you’re in the market for a new credit card, don’t apply until you’re ready to book your trip. Why? Because new cardholders typically get sign-up incentives and bonuses for spending a certain amount in the first couple of months. These perks could include cash back or a surplus of miles.

Let’s say your card’s welcome offer is $450 in travel redemption when you spend $2,000 in eligible purchases within four months of account opening. You could spend $2,000 on flights, then use the $450 reward for a hotel room, lowering the overall cost of your trip. 

Track spending and get rewards

Using a credit card specifically reserved for travel purchases, you can accurately track spending and stick to your vacation budget. Beyond the welcome offer, many  and discounts on every purchase made. It saves money during your trip and for future family vacations on a budget.

Prepare for the unexpected

No matter how much you plan, surprise expenses can still pop up. So it’s a good idea to have a credit card that you can use for unexpected costs. (Think: last-minute ticket changes, replacement luggage, special souvenirs or spontaneous adventures.) You’ll also need a credit card to book any airlines, hotel rooms or travel company services.

Additionally, many travel rewards credit cards offer benefits, such as fraud protection, rental car insurance and travel insurance. While an emergency is unlikely, the coverage means you won’t pay out-of-pocket or blow your travel budget in worst-case scenarios.

Start saving for vacation early to improve your credit score

Using your credit card can improve your credit score if you pay your bills on time. Create a travel budget and start saving for vacation early. That way, as you take advantage of your credit card while on vacation, you're prepared to pay your bill when you get back. 

While it’s ideal to pay your bill in full every month, consider applying for a credit card with a 0 percent introductory APR. Doing this before booking your trip may allow you to spread travel costs over several months without paying any interest. It’s another way to help plan an affordable vacation for a large family.

Keep your credit card secure

Before you leave, be sure to call your bank and let them know when and where you plan to travel. Or, if you have a U.S. Bank account,  travel notifications within the app. This helps guard against unnecessary fraud warnings or even a possible freeze on your account if the bank suspects misuse. While traveling, it’s important to be on higher alert than usual for credit card thieves. Source

Payment Links: What They Are and How To Use Them

Payment links are a simple way to accept payments however you do business, whether that’s in person, on social media, or through email and text communication with customers.

What is a payment link?

A payment link — also referred to as a checkout link — is a clickable link or scannable code that allows a customer to complete a purchase. Payment links are offered in the form of digital links, buy buttons, or QR codes, and are used across websites, social media platforms, apps, messaging tools, and in person.

When a customer uses a payment link, they’re typically taken to the merchant’s online checkout page to complete their transaction. Payment links can be used for both a single transaction, such as a customer invoice, and for multiple transactions, such as a buy button on a social media platform.

What are the benefits of using payment links?

Payment links facilitate simple online payments and don’t require additional infrastructure, a website, or any code to set up and use. Any merchant can easily create a payment link that takes customers to a straightforward checkout page to complete a transaction.

Payment links are used to:

Take payments anywhere you sell products or services: Whether you send clients a payment link via text message or direct customers to your online checkout page from multiple social media platforms, payment links allow you to get paid however you do business.

Customize a purchase: Payment links come in different forms, so choose the ones that work best for the platforms you sell on. Direct payment links work well for customer interactions and conversational commerce, while buy buttons and QR codes work well for online, social, or in-person selling.

Offer customers multiple ways to pay: Once customers have accessed your payment link, you can accept credit or debit card payments, or digital payment methods such as Apple Pay, Google Pay, Cash App Pay, or Afterpay.

Keep payments simple: Customers don’t need an account or a special app to use a merchant’s payment link. They can access your payment link from any device for direct payment.

Source

5 Ways To Strengthen Your Business Credit

Learn how to lay the groundwork for getting the credit your business needs when you need it.

Many businesses start out relying on the good credit of their owners. But when your business has its own good credit that's separate from yours, it has more options for borrowing and can negotiate more favorable terms. Business credit also can help protect you from personal financial risk if your business begins to struggle.

Building business credit isn’t difficult, but it takes time and attention. A useful place to start is by understanding what’s included in a business credit history.

Business credit history and scores

You’re probably familiar with the system that tracks your personal credit history. If you’ve ever rented an apartment, gotten a car loan or applied for a mortgage, you know that your FICO® score is a critical factor. A similar but completely separate system exists to help lenders evaluate whether to lend to a business.

Financial institutions and other large companies report credit-related business activities, which business credit agencies use to compile a record.

Every entry in that record contributes to an overall sense of the creditworthiness of a business, typically summarized as a numeric score between 0 and 100. This record can contain a history of credit card payments, how lines of credit have been used, whether a loan is in good standing and even whether invoices are paid on time.

Each credit reporting agency weights factors differently when calculating a score. Beyond how a business uses credit, additional considerations in a business credit score include:

• Age of oldest financial account
• Company size and history
• Established trade relationships
• Industry factors

How to improve your business credit scores

There’s no single right way to establish creditworthiness, but at a basic level, you need to use credit to get credit. Making purchases with a credit card and paying the balance monthly is one simple way to build credit. Want to do more? Here are other ways to keep your business credit scores moving in the right direction.

Establish your business presence.

The more you do to establish your business as a legitimate, well-managed enterprise, the better you’ll look to lenders. At a minimum, make sure your business has an employer identification number, bank accounts in the name of the business, and any required permits or certifications. It also can help to set up your business as a corporation or a limited liability company.

Obtain only the credit you need.

Limit the number of credit cards you open. If your credit history makes your business seem overexposed or you appear sloppy with credit, it can hurt your scores.

Pay what you can and pay on time.

Partial payments damage your business credit scores less than late or skipped payments. Make sure to pay whatever you can when the payment is due. A good-faith effort shows current and future lenders that you will always do your best to pay what you owe.

Establish a good relationship with vendors.

Some vendors report on-time payments and overdue invoices to credit agencies. If you think you might have a hard time paying an invoice, ask the vendor to work with you. This could mean setting up a payment plan or agreeing to a new due date. And when your cash flow is good, make it a point to pay early. Vendors will be appreciative, and it can boost your business credit scores even further.

Keep an eye on your credit.

Credit utilization is necessary for building credit, and so is making sure you keep some space between your balance and your limit. By doing that, you can safeguard your credit score and ensure you have credit available when you need it. But beyond the numbers, just developing a habit of staying on top of your credit and managing how much you use is one of the smartest ways to stay financially healthy. Source

How to Prevent & Recover Failed Payments

What Is a Failed Payment?

​​Payment failure is exactly what it sounds like—a payment attempt that declines or can’t process. It can happen for any number of reasons, such as insufficient funds, card expiration, typos/errors in the payment details, technical glitches, or network issues. But regardless of the reason, a failed transaction can halt the completion of a sale, creating frustration between customers and merchants.

While financial institutions and payment gateways have systems in place to prevent payment failure, they can still occur. Oftentimes, a payment failed due to a customer not having sufficient funds or inputting a typo. For this reason, it is important for both customers and merchants to be aware of the potential causes and to take steps to prevent payment failures.

Voluntary vs Involuntary Churn

Churn rate, which refers to the rate at which customers discontinue their subscriptions, is often associated with failed payments. 

Let’s take a look at the two types of churn rates.

• Voluntary Churn

When a customer cancels their subscription or terminates a service agreement with your business. There are several reasons why customers cancel their subscriptions, including dissatisfaction with the service, changes to the subscription, or cost-related concerns.

• Involuntary Churn

When a customer is lost because of involuntary issues that are outside of the company or the customer’s control. Card expiration is a common reason for involuntary churn. If a customer does not update their information, then this is a loss for the company. 

What Causes Failed Transactions?

It’s tempting to assume that transactions fail because the customer doesn’t have enough money to cover the transaction amount. But that’s not always the case, and even if it is true, such an assumption can create an awkward situation for your customer. 

Let’s examine why a payment may fail, whether it is caused by the customer or the merchant.

1. System Downtime or Maintenance

No system works 100% of the time. If your system needs an update, undergoes maintenance, loses connection to the internet, or otherwise experiences a processing outage, you may come across a payment decline. Keeping your payment processing systems to be regularly updated, maintained, and tested minimize payments not processing all the way through.

2. Insufficient Funds

This is how banks describe the situation where there is not enough money in someone’s account to cover the purchase or withdrawal amount. This can happen due to a variety of reasons, such as overspending, or unexpected expenses. When this happens, simply let the customer know the reason and allow them to address the issue on their end.

3. Compromised Security

Compromised security is less common, but another major threat for consumers and businesses alike. It can lead to various problems, such as data breaches, fraud, identity theft, and payment failure. This is why it is vital to ensure that adequate security measures are in place to prevent data breaches and safeguard sensitive information from potential attacks.

4. Incorrect Information

When making online payments, incorrect information is a common reason transactions fail. This can be because of incorrect billing information, card number, expiration date, or CVV code. The customer should carefully review the payment details and ensure that all the information is entered accurately.

5. Unsupported Payment Method

Unsupported payment methods can lead to failed payments and a whole host of issues. This can be due to a variety of reasons, including outdated payment gateways, unsupported currencies/banks, or simply not having the payment method set up within your system. If you’re seeing a lot of payment fails from tourists or certain cardholders, consider widening your payment methods to include international card brands.

6. Defective Payment System

As a merchant, it’s crucial to have a payment system in place that can reliably communicate errors back to you. When a payment gateway receives a payment and it can’t process it, the gateway should be able to communicate the exact reason for the error. If a gateway can’t respond with the correct reason, a failed payment returns. Ensure your payment gateway has the most modern technology.

7. Card Expiration

Another very common reason for a failed payment is that the card has simply expired. Most of us do not actively track our card expiration, and even if we do, we don’t always remember to update the card information everywhere we need to.

How to Recover Failed Payments

If a payment system declines an online payment for any reason, it can lead to a merchant possibly losing out on a sale. However, there are several things you can try to do to recover the payment!

1. Payment Retry Cycles

The first and most obvious thing to do is to try the credit card again to test for a system glitch or temporary error. A temporary error or system glitch can prevent the payment from going through initially. Additionally, a simple human typographical error in the payment details can cause the payment to fail. Trying the payment again with the correct payment details can resolve the issue.

2. Dunning Automation

Dunning automation allows you to set up automated retry cycles depending on the subscription type. For example, recurring payments can be set up on an annual or monthly basis. This can be a great tool for businesses to help keep billing information up to date, which helps you experience fewer declined payments.

3. Backup Payment Options

This could be as easy as sending an email letting your customer know that their payments were declined and giving them options to correct the issue. These options could include alternative payment methods like digital wallets or direct debit. Giving the customer different payment options is a great way to help make sure you are getting paid.  

Having a combination of all recovery processes like dunning automation, backup payment options, and payment retries will optimize your business for success. However, the most important part of preventing failed payments is to have a reliable payment gateway in place. A proper payment gateway has a range of recovery processes in place to help merchants recover lost revenue due to payment declines. Source

Visa vs. Mastercard: What’s the Difference?

Four major brands continue to dominate the electronic payments industry, with Visa and Mastercard standing out as the two largest payment processing networks globally. Visa and Mastercard do not directly issue credit or debit cards. Instead, they operate as payment networks, facilitating transactions between banks and merchants for credit card purchases.

In the comparison of Visa vs. Mastercard, both companies offer a broad spectrum of products through co-branded relationships with financial institutions, including credit, debit, and prepaid cards.

Since its establishment in 1958 by Bank of America, Visa has evolved into the largest credit card network, holding a 47% share of total card payments[1]. Beyond its core credit card services, Visa provides a comprehensive suite of financial offerings. These include prepaid, debit, and credit cards, as well as supplementary services such as ATMs, retail partnerships, theft protection, and business analytics. Visa sustains its financial health by generating revenue through fees levied on card issuers to facilitate transaction processing.

Established in 1966 by a consortium of banks to challenge Visa’s dominance, Mastercard underwent a significant transformation in 2006. Through an initial public offering (IPO), it transitioned from cooperative ownership to a dynamic global payment technology platform. Besides issuing prepaid, debit, and credit cards, Mastercard provides a diverse range of global business and finance services. The company’s revenue model is multifaceted, relying on interchange fees charged to banks for card issuance and earning fees at various stages of the payment process.

Benefits of Visa

Visa offers a range of benefits through its three-tier structure: Traditional, Signature, and Infinite. At the Traditional level, cardholders can access cardholder inquiry, lost/stolen card reporting, and auto rental collision damage waiver services. Signature benefits include an extended warranty, year-end summaries, travel and emergency assistance, and a concierge service. Infinite benefits encompass all Signature perks and additional features such as return protection, purchase protection, travel insurance, trip interruption and cancellation insurance, and lost luggage reimbursement.

It’s worth noting that Visa’s benefits extend beyond what the company provides, as issuers may offer additional benefits. While Visa and Mastercard share some categories of benefits, Visa, particularly through its Signature and Infinite tiers, offers a more extensive array, including purchase protection, exclusive experiences, and rewards. Additionally, Visa provides special programs like the Visa Signature Luxury Hotel Collection and various travel perks. It also provides emergency services such as roadside dispatch and assistance for lost or stolen cards.

Benefits of Mastercard

Mastercard also provides cardholder benefits across a three-tier structure: Standard, World, and World Elite. Although most Mastercard-branded credit cards are issued by various banks and financial institutions (not by Mastercard itself), Mastercard still provides some benefits directly to cardholders.

At the Standard level, these include zero fraud liability, Mastercard Global Service for lost or stolen cards, ID theft protection, McAfee antivirus protection, and unique experiences through their “Priceless” program. The World tier includes Mastercard Travel & Lifestyle Services, trip planning, hotel rate guarantees, and luxury hotel benefits. The World Elite tier adds concierge services, Priority Pass Digital for airport lounge access, and exclusive partner discounts.

What are the Main Similarities between Visa and Mastercard?

The main similarities between Visa vs. Mastercard lie in their fundamental roles as payment networks rather than card issuers. Both companies don’t directly issue credit cards but provide the technology for banks to process transactions between customers and merchants. The issuing bank plays a more significant role in determining interest rates, fees, rewards, and perks associated with a credit card.

One of the primary shared characteristics is their near-universal acceptance globally. Almost every merchant that accepts credit cards typically takes both Visa and Mastercard, which makes them reliable options, especially compared to less widely accepted networks like American Express and Discover.

Visa and Mastercard don’t set the terms and conditions for fees and reward tiers. They offer various card categories, including low-fee, premium, rewards, and frequent flyer credit cards. The specific benefits and features depend on the issuing bank. Both networks provide security features such as purchase protection, cell phone protection, and return protection.

Moreover, both Visa and Mastercard have adapted to digital payment options, offering contactless and mobile payment solutions like Tap & Go Payments and support for Apple Pay, Google Pay, and Samsung Pay.

What’s the Difference Between Visa and Mastercard?

Three key differentiators set apart Visa vs. Mastercard. These distinctions include:

Benefit Structures: The primary differences between Visa and Mastercard are the benefits each network offers, these distinctions are generally minor. The majority of the features and perks you receive with a credit card are determined by the card issuer.

Acceptance and Market Share: Both networks are widely accepted globally, with Visa accepted in 200+ countries and Mastercard in 210 countries. Visa holds a larger market share in the USA, accounting for 61% (as of 2022), compared to Mastercard’s 25%.

Exclusive Partnerships: Both Visa and Mastercard have exclusive partnerships with various businesses to enhance their market presence. These partnerships are rare; however, most businesses accept both.

Visa or Mastercard: Which is Better?

Visa and Mastercard, two of the leading global payment processing networks, act as intermediaries between banks and merchants. While they don’t directly issue credit or debit cards, they offer tiered benefits: Visa with Traditional, Signature, and Infinite cards, and Mastercard with Standard, World, and World Elite cards. Both networks are widely accepted and support digital payments but differ in operational methods, fee structures, market shares, and exclusive partnerships.

Understanding these distinctions is crucial for consumers when choosing between Visa and Mastercard. As a business owner, selecting the right merchant service provider for credit card processing is vital. Source

Payment Processor vs. Payment Gateway: What They Are And How They Work Together

In order for businesses to offer their increasingly digital-first customers simple and secure transactions, they have to examine the distinctions and interplay between payment processors and payment gateways.

Understanding how these components work together is a key part of delivering smooth and reliable payment experiences.

What is a payment processor?

A payment processor is a company or service that facilitates electronic transactions between customers and businesses by processing and authorizing credit card, debit card, and other digital payment methods. A payment processor acts as an intermediary between the customer’s bank (issuing bank, or issuer) and the business’s bank (acquiring bank, or acquirer), ensuring that funds move securely from the customer’s account to the merchant account.

Payment processors play an important role in e-commerce and retail by verifying the customer’s payment details, checking for fraud, ensuring compliance with relevant regulations, and, ultimately, authorizing or declining the transaction. Typically, they charge the business a fee for their services, which may include a per-transaction fee or a percentage of the transaction amount.

What is a payment gateway?

A payment gateway is a technology or service that securely transmits payment information between the customer, the business, and the payment processor. It acts as a bridge between the parties involved in a transaction, enabling the exchange of information required for processing payments. A payment gateway is the digital equivalent of a point-of-sale (POS) terminal found in physical retail stores.

Using a payment gateway ensures that sensitive payment information is handled securely, as payment gateways adhere to strict security standards and encryption protocols such as the Payment Card Industry Data Security Standard (PCI DSS).

What are the differences between payment processors and payment gateways?

Both payment processors and payment gateways are important components of the electronic payment ecosystem, but they serve different functions. Here are the key differences between them:

Role in the transaction process

Payment processor: A payment processor is responsible for facilitating the transaction by processing and authorizing payments, as well as ensuring the secure transfer of funds between the customer’s bank and the business’s bank.

Payment gateway: A payment gateway is the connective component responsible for facilitating communication and securely transmitting payment information between the customer, the business, and the payment processor.

Scope of services

Payment processor: Payment processors offer a broad range of services, including fraud detection, chargeback management, and compliance with payment regulations, in addition to processing transactions.

Payment gateway: Payment gateways focus primarily on the secure transmission of payment data and typically do not provide additional services like fraud detection or chargeback management.

Integration with business systems

Payment processor: Payment processors usually require businesses to establish a merchant account to process transactions and may involve more complex setup procedures.

Payment gateway: Payment gateways often provide easier integration options for businesses, including APIs, plugins, and prebuilt modules, allowing businesses to start accepting online payments quickly.

Some companies offer both payment processing and payment gateway services as part of an integrated solution.

How do payment processors and payment gateways work together?

Payment processors and payment gateways play different but complementary roles in facilitating secure and efficient electronic transactions for businesses and customers. Together, they enable frictionless communication and data transfer between parties.

Here’s a step-by-step overview of how payment processors and payment gateways collaborate during an online transaction:

Customer initiates the transaction

When a customer is ready to make a purchase, they enter their credit card information (or other payment information) on the business’s website or app.

Payment gateway’s role

The payment gateway securely encrypts the customer’s payment data and sends it to the payment processor.

Payment processor’s role

The payment processor receives the encrypted payment data from the payment gateway and forwards it to the customer’s bank (the issuing bank) to request authorization for the transaction.

Issuing bank’s response

The customer’s bank verifies the payment details, checks for available funds, and either approves or declines the transaction based on its assessment. The issuing bank sends this response to the payment processor.

Processor to gateway communication

The payment processor shares the bank’s response (approval or denial of the transaction) with the payment gateway.

Gateway to business communication

The payment gateway relays the response to the business’s website or app, which displays the appropriate message to the customer (transaction approved or declined).

Settlement of funds

If the transaction is approved, the payment processor coordinates the transfer of funds from the customer’s bank account to the business’s bank account. This process, called settlement, typically takes a few business days to complete.

Throughout this process, the payment gateway and payment processor work together to handle sensitive payment information securely and efficiently, while adhering to industry standards and encryption protocols such as PCI DSS. Source

Who Is Involved In Making Credit Card Processing Possible?

The customer

The person or business making a payment using a credit card is the kick-off point for any sort of credit card processing.

The merchant

The other half of the purchasing process, a merchant has the desire goods or service that a customer uses a credit card to pay for.

Payment gateway

When a payment is made, it goes through a payment gateway that connects the merchant to the credit card processing company. A payment gateway deals with all of the customer and the merchants financial information, the present or not-present state of the credit card, (i.e. is the payment virtual or in person), and sends them to whatever credit card payment system for small business the merchant is using. Payment gateways will then inform the merchant if the card has been approved or declined. There are many credit card payment systems for small business.

Payment processor

This is the virtual liaison between the merchant’s preferred credit card and the customer (or cardholder’s) financial institution of choice. When you make a credit card payment for business, the payment processor helps the two institutions communicate.

Card network

The customer makes a credit card payment using a specific credit card brand–Visa, Mastercard, Discover, etc. This brand of credit card is commonly referred to as the “card network.” Customers choose their card networks based on a variety of factors: rewards, APR, interest rates, initial signing bonuses, etc.

Issuing bank

You can think of this as the “customer’s bank”. When a credit payment for business is made the payment processor works with the issuing bank to provide payment to the merchant. They also will ensure that the customer has the available funds to make the purchase, and if so, they’ll approve the release of those funds.

Acquiring bank

This is the merchant’s bank. When a payment is made–via credit card or otherwise–this is where it ends up and where it’s stored for future use. Many banks also act as credit card processors, providing their own credit cards and/or the equipment used to allow businesses to accept credit cards. Nowadays, many of these credit card payment systems for small business (or big business) exist as strictly online entities.

Source 

Happy Independence Day!

Happy Independence Day! Wishing you a joyful and patriotic 4th of July! May your day be filled with family, fireworks, and fun. 

What is the Credit Card Competition Act?

The Credit Card Competition Act (CCCA) is a bill that was introduced and sponsored by Democratic Senators Dick Durbin and Peter Welch and Republican Senators Roger Marshall and J.D. Vance.

You may remember Senator Durbin’s name as the senator behind the Durbin Amendment, the bill that is responsible for regulated interchange on debit cards issued by large banks and permitted minimum charges on credit cards. Now, Senator Durbin hopes to take on credit card interchange fees. Instead of requiring a cap (as the Durbin Amendment did for debit cards) the bill would require the largest credit card-issuing banks to give businesses a choice of at least two unaffiliated networks to process credit card transactions. Additionally, the two networks can’t be those “with the largest market share of cards issued” – That is, Visa and Mastercard.

The theory is that this would drive down costs due to the competition of a business having options for the network that processes cards. Currently, there is no choice on that – a business accepting a card processes it on that card’s network.

Some retail groups, large retails such as Target and Walmart, and consumer advocates support the CCCA, noting that swipe fees have continued to go up over time. One of the more vocal supporters has been the National Retail Federation, who positions the argument as choosing local businesses over big banks and finance companies. For example, this ad by the NRF encourages Congress to “stand up for Main Street over Wall Street.”

Supporters claim that the lowered fees will result in savings for businesses and consumers, claiming that much of the reduction may go directly to consumers in the form of lowered prices, though acknowledging that the business might keep some of the savings for business expenses. It’s good to see supporters acknowledging that, since many people feel that it’s unlikely businesses would reduce their shelf prices due to fluctuations in interchange fees.

Opponents

Those who oppose the bill claim that it will cause less secure payments and threatens rewards programs, which are funded by transaction fees. They also say that it’s just a money grab by large retailers trying have their cake and eat it, too. (That is, the retailers benefit tremendously from credit card payments, as customers often spend more and it has traceability and transaction security, but they don’t want to pay for the service.)

One of the more vocal opponents has been the Electronic Payments Coalition, which posts social media campaigns highlighting the possible threat to rewards cards as the primary reason to oppose the bill. For example, in this video, the ominous voiceover tells the viewer that “big-box retailers” are going to line their pockets with YOUR rewards.

Scare tactics aside, there is a possibility that rewards would be impacted, but it’s difficult to say how at this point. The argument about weaker transaction security seems unfounded, as the networks that payments would be routed over still must meet transaction security standards.

The Reality of the CCCA

The truth is, it’s hard to say what impacts the bill will have on rewards cards, and on interchange savings.

The Durbin Amendment had both positive and negative effects, and it’s likely that the CCCA would be the same. Given the popularity of rewards cards and their use as a differentiator to get consumers to sign up for particular cards, it’s hard to imagine them going away completely. However, it’s not outside the realm of possibility that card issuers would scale back on the rewards offered, either offering smaller percentages for cash back or focusing more on non-cash back rewards, such as airline miles. Finance site Nerdwallet notes that countries with lower interchange fees than those in the US still have rewards credit card programs, but that it may not be as lucrative.

Another thing to be wary of is reduced interchange fees that don’t result in lower costs for businesses or consumers. On some pricing models, such as flat rate pricing, you pay one rate no matter what the underlying interchange costs are. Those processors are not obligated to lower your rate just because their costs were lowered. You wouldn’t necessarily see any savings.

You could also miss out on the interchange savings if you’re on a tiered pricing model. With tiered pricing, the credit card processing company chooses what rates to charge a business regardless of what the interchange cost actually is and they determine which of your transactions to charge according to which rates. In those situations, reductions in interchange are more likely to be pocketed as additional profit for the processor than passed on to the business.\

In fact, that’s what happened for awhile with many businesses after American Express introduced its OptBlue pricing model, which lowered fees to accept Amex. Instead of passing those savings on to businesses, credit card processors kept the difference, with businesses being none the wiser. Over time, this has shifted as more businesses become aware of lower cost Amex pricing models, but it’s possible we could see something similar here.

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