Online payment processing is an important part of running a small business. Payment processing refers to how money is transferred from your customer’s account to your business account. A smooth online payment process can help you securely earn money.
Still, online payment processing can be tough to understand since it includes many players, platforms, and types of technology.
To help, we’ll break down online payment processing for small businesses, including how it works and which entities are involved.
There are many parties involved in processing online payments. But before diving into the main players, let's look at the roles of these entities:
It can be easy to confuse the merchant acquirer vs. payment processor. Basically, the merchant acquirer is the bank that accepts the payment from the customer. But the payment processor does the heavy lifting of actually authorizing and completing the transaction.
Some platforms, like PayPal, can act as both processor and acquirer, completing your business transactions and securely storing your money in one place.
Now we’ll unpack the main online payment processing players. It’s important to understand each player’s role so you can optimize your payment process and increase revenue.
Somewhere in the world, a customer thinks, “I need some awesome high-top sneakers.” You happen to sell these high-top sneakers.
That customer finds your store online, adds the shoes to her cart, and checks out. Thanks to the secure payment gateway, her credit card information can be validated and transferred to the payment processor in seconds. Now, she can just sit back and wait for her new shoes to arrive!
The customer uses the payment gateway to safely submit her information and make her purchase. From there, the payment processor authorizes and completes her transaction.
The customer’s bank then authorizes the payment, and your merchant bank credits your account. Money is debited from the customer’s bank account and, a few days later, deposited into your bank account. The sale goes through, and everyone is happy!
To get a bit more technical, here’s a closer look at the different elements of online credit card payment processing:
Learn more about how PayPal credit card processing works.
The merchant (that’s you) gets paid. As your payment processor, gateway, and online merchant account, PayPal authorizes transactions and helps protect electronic payments that come through your website. So you can easily accept online payments and earn money for your business.
So, we’ve covered the big players. But there are still a few more online payment processing tools and participants you might want to know about:
Looking for more ways to optimize your payments and earn money? Check out our handy list of payment processing terms for small businesses.
In partnership with three expert business owners, the PayPal Bootcamp includes practical checklists and a short video loaded with tips to help take your business to the next level.
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