Facts to consider before selecting a payment provider

Posted on 30.11.2016
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Written by Eva Ciga

When managing your online business, you will need to pay attention to a variety of factors when accepting payments. Selecting the most appropriate online payment provider for your business is the first! Here is a comprehensive guideline that you can keep in mind in order to select an online payment wall.

Who are the parties associated in an online payment transaction?

When it comes to online transactions, three primary different parties are involved. They include:

  • Your customers – Customers are the individuals who pay you in order to obtain the products or services that you offer.
  • Your online payments provider – In order to accept payments from your customers, you should have an agreement with a payment service provider. A payment service provider, also known as a PSP, normally work with an acquiring bank to supply merchants (business owners like yourself) with a merchant account.
  • The technology – This is the middle layer in between your customers and your merchant account.

How does payment processing work?

One of your potential customers would purchase something from your online store using their credit or debit card. The card information entered by your customer would then be sent to the payment processor for validation (a variety of checks are done including address, cardholder name and at times – phone number and date of birth). Then the payment processor sends a request to the acquiring bank which in turn submits the payment to the payments network (example Visa or MasterCard). The payment is directed to the issuing bank of the customer where the funds are debited (the issuing bank is the bank that issued the credit or debit card).

 

If the bank responds positively (after a series of checks including if the cardholder actually holds enough funds), your customer would be allowed to proceed! The customer would then receive a message saying that the payment has been accepted. If not, the customer would be asked to try again and a reason for the decline provided – all this occurs in just a couple of seconds, pretty fast huh!? The acquired funds would then be deposited in your merchant account. However, you will not be able to withdraw funds in your account right away due to some regulatory restrictions and policies implemented by the acquiring bank or/and the PSP.

 

What are the policies and processing fees associated with?

Now you have a clear understanding about how a secure payment processing system works. The next item on the list is to figure out more information about the fees. Here is a list of the fees that are normally involved in processing credit or debit card payments:

  • Interchange fee – A pre-negotiated percentage is paid to the issuer on every sale. Interchange fees vary depending on the industry, type of card used, location of cardholder (whether the transaction is considered from intraregional markets or interregional sectors).
  • Markup – The acquiring bank would take a percentage cut through a markup fee.
  • Assessment – The credit card association, such as MasterCard or VISA would charge a pre-negotiated fee which is also included in your overall fee.
  • Processing – The payment service provider would also take a fixed amount during the credit card processing stage. Areto Systems never charges any additional fees and requests commission payments directly from the payment service provider or the acquiring bank!

Payment services provider and pricing model

Some payment service providers are able to offer various pricing models. Two of the main models include:

  • Interchange plus pricing – The payment provider would get a fixed fee on top of the interchange fee. This is known as the interchange plus fee. It is important to keep in mind that there are more than 300 interchange plus fee types so pricing with this model can become quite complex!
  • Flat rate pricing – This is the most straightforward model applied by most payment service providers. You basically have to pay a fixed percentage amount, called the Merchant Discount Rate (MDR) for any transaction process, regardless of the card brand used or source of the transaction.

If you keep these facts in your mind, you will be able to figure out the best credit card processing service out there for you. For most merchants, Areto Systems can supply very competitive flat rate pricing!

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