Payment processing: How payment gateways get you paid

This requires using a third-party payment platform such as Authorize.net that can make the process simple and secure.

Many small business owners don’t think much about how their payments are processed as long as things are running smoothly. We can help demystify the payments process as it occurs effortlessly in the background, unseen. 

When a problem does occur, understanding why can be confusing if you’re not familiar with how payments processing works. Here’s a quick primer on the who, what and why of the payments process. And you can learn more about payment gateways here. 

The WHO in payment processing

In most traditional payment transactions, there are four primary parties involved:

• The customer is the individual or entity who is buying a good or service
• The business is the business that is selling the good or service
• The acquirer is the bank or financial institution with whom the merchant has their bank account
• The issuer is the bank that provided the card and account to the consumer

There is also a gateway, such as Authorize.net, that connects all of these parties—customers, merchants, acquirers and issuers—to help the business accept and process payments.

The HOW in payment processing

There are three basic steps in the payments process: authorization, capture and settlement.

Authorization

Authorization occurs at the instant the sale takes place when sufficient funds for the purchase are verified. When a customer’s card is swiped, digital wallet scanned or order submitted online, a gateway manages the process of checking to make sure the customer has sufficient funds available for the purchase. The gateway receives the purchase and customer information from the merchant and verifies the details with the customer’s issuing bank (the ISSUER). This process is called authorization.

Capture

After verifying that funds are available, and the purchase is approved, and a hold is placed on the money. This process is called capture. Once this happens, the merchant can hand over or ship the goods and be confident that they will be paid—but they haven’t been paid just yet. No money has been exchanged; the transfer of money from the customer’s bank (the ISSUER) to the merchant’s account (the ACQUIRER) requires one final step: settlement.

Settlement

The process of transferring money from the customer’s credit card or bank account (the ISSUER) to the merchant’s bank account (the ACQUIRER) is called settlement. This usually happens once per business day when the gateway aggregates all of a merchant’s daily transaction details and sends them to the payment network, where banks connect to each other and transfer the money from customers’ accounts (the ISSUERS) to the merchant’s account (the ACQUIRER). The customers’ banks post the charge on their accounts and the transactions are now complete.

Payment processing made easy

Whether you’re accepting payments online, by phone, on a mobile device or in a retail location, a platform like Authorize.net provides a complete set of tools to enhance and secure every part of the payment process.

If you’re ready to simplify your payment processing, sign up with Authorize.net today.