What is a payment processor?
A payment processor is a company that provides the technology and services needed to authorize and settle credit and debit card transactions. Payment processors typically work with banks and merchant account providers to offer card-based payment solutions to businesses of all sizes.
How do payment processors work?
Payment processors typically work with banks and merchant account providers to offer card-based payment solutions to businesses of all sizes. When a customer pays for goods or services using a credit or debit card, the payment processor will typically receive an authorization request from the merchant's bank. The processor will then route the request to the card issuer's bank for approval. Once the issuer approves the transaction, the processor will settle the funds with the merchant's bank.
What are the benefits of using a payment processor?
There are many benefits of using a payment processor, including:
- Convenience - Customers can pay for goods and services using their credit or debit cards, which is often more convenient than other payment methods such as cash or checks.
- Security - Credit and debit card transactions are typically more secure than other payment methods, as they are protected by various security features such as encryption and fraud prevention tools.
- Speed - Credit and debit card transactions are typically processed much faster than other payment methods, which can be beneficial for both businesses and customers.
- Increased sales - The ability to accept credit and debit card payments can help businesses increase sales, as customers are more likely to make a purchase if they can use their preferred payment method.
What are the risks of using a payment processor?
There are some risks associated with using a payment processor, including:
- Fraud - Although credit and debit card transactions are typically more secure than other payment methods, there is still a risk of fraud. This can be mitigated by using fraud prevention tools offered by many payment processors.
- Chargebacks - A chargeback occurs when a customer disputes a charge on their credit or debit card statement. If a chargeback is filed, the merchant may be liable for the amount of the charge, plus any associated fees.
- Contracts - Payment processors typically require businesses to sign a contract in order to use their services. These contracts can be complex and may include early termination fees, so it is important to read them carefully before signing.
How to choose a payment processor?
There are a few things to consider when choosing a payment processor, including:
- Fees - Payment processors typically charge a fee for each transaction. These fees can vary depending on the type of card used, the amount of the transaction, and the processor itself. Be sure to compare fees from different processors before choosing one.
- Features - Some payment processors offer additional features such as fraud prevention tools, recurring billing, and the ability to accept multiple currencies. Consider which features are important to your business before choosing a processor.
- Contracts - As mentioned above, payment processors typically require businesses to sign a contract in order to use their services. These contracts can be complex, so be sure to read them carefully and understand all the terms and conditions before signing.
Top 10 payment processors
There are many payment processors to choose from, but here are 10 of the most popular:
- Amazon Payments
- Chase Paymentech
- First Data