We know you into this digital business for long. Now that you are thinking about using the best merchant account for online business to process your payments safely, you must first know how do these payment processors work. You will find different card payment providers in UK and with the right information at hand, you can go forth to select the best merchant account for your online business.

Know that a very few denizens are using cash to make purchases. Instead they are using credit cards and digital payment methods to make more transactions than ever before. Payment processing companies are becoming popular in the market because of their ability to offer different tools to accept a variety of payment methods while making those transactions easier and safer. However, payment processing comes with its own set of costs and challenges.

So, how do these payment processors work? Let us have a detailed look at it here.

Before we tell you how online payment processing happens, let’s talk about the participants involved in a credit and payment transaction.

Merchant

Payment processors work for the merchant. He is essentially a vendor or store that is selling goods or services to the cardholder. This merchant accepts credit card payments.

Cardholder

The Cardholder is the one who is paying for the goods or services. There are two types of cardholders out there. First there is a transactor, who pays the credit card balance in full. Then there is a revolver, who only pays a piece of the balance while the rest of it accrues interest.

Merchant’s or Acquiring Bank

The bank is responsible to receive payment authorization requests from the merchant. The bank sends them to the issuing bank. If then delivers the response from the issuing bank to the merchant.

Payment processor

A payment processor is the third-party entity who is sometimes a part of the merchant’s bank. The processor offers a device or service enabling the merchant to accept credit card payments as well as send those payment details to the card network.

The payment authorization is then forwarded to the authorizing bank.

Credit Card Network

The network oversees the interchange fees and process credit card payment worldwide. Some examples are MasterCard, American Express, and so on.

When the transaction happens, the acquiring processor will send the details of the credit card payment to the credit card network. The network then sends the payment authorization request to the issuing bank. It will then forward the response from the issuing bank to the acquiring processor.

Issuing Bank

This is the bank sending payments on behalf of the merchant or the customer.

Payment processors act as an intermediary between a business and a financial institution. Payment processors work for online businesses as well as brick-and-mortar companies to offer various payment services. A payment processor can check on the validity of the payment by connecting with the issuing bank.

Even though some businesses have turned down the idea of having to pay to use such payment processors, the fact of the matter is that these processors make payments quite easy. They also offer various payment options, which are more convenient for the customers. This means more revenues and profits for the business in the long run.

The payment services providers also offer an all-inclusive system where companies get the opportunity to keep all their payment data safe in one place. This decreases confusion, save time, and reduce costs.

It is also important to note that payment processors are different from payment gateways, but they work together to offer the best services to the merchants.

Types of Fees a merchant is expected to pay

Flat fees

This can be a monthly or two-monthly fees that a merchant must pay to the payment processing company. The price is same every month.

Transaction Fees

These costs are added per transaction basis. The more the transactions the amount will be accumulated and it must be cleared as per the agreement signed by the merchant. These rates are usually made up of three parts: interchange rate, the assessment fee, and the merchant discount rate.

These three parts helps to make sure that the credit card network, payment processor, receiving bank, and issuing bank all get a piece of the transaction fees. The fees fall in the range of 2%-3% of the total purchase price after the sales tax has been deducted. The rates can be a bit higher for the online merchants.

Interchange Rate

The interchange rate is what the acquiring processor or bank pay to the issuing bank. This is the standard rate set by the credit card network.

Most of the interchange rates have two components: a fixed transaction fee to the credit card network and a percentage that goes to the issuing bank.

The rates many vary and depend upon various factors such as card type, processing method, credit card company, merchant’s business type, and more.

Other types of fee charges are chargeback fees, merchant discount rate, and assessment fees.

If you have further doubts, you can connect with card payment providers in UK for more details.

Jacob Allen is the author of this article. For more information about best merchant account for online business please visit the website.