To ensure the success of your business, it is essential to offer electronic payment options to your customers. Providing multiple payment methods makes it easier for customers to make purchases, ultimately increasing your conversion rate.
Enabling electronic payments
To accept electronic payments, such as credit card transactions both in-person and online, you will need to open an account with a merchant service provider. These providers grant you access to their e-payment system in exchange for a transaction fee.
Merchant service providers offer payment gateways and payment processors. They act as intermediaries, facilitating communication between your customers’ funding sources and your own bank to transfer payments to you.
Some merchant providers offer combined gateway and processor technology. If you make sales in person, you will need a payment processor integrated with a terminal—an electronic device that reads your customers’ credit or debit cards.
While it’s possible to manage without a merchant account by requesting customers to pay through online transfers directly into your business bank account, this can be less convenient for customers and could make refunds more challenging.
Merchant services not only enable you to offer a wide range of payment options but also streamline your payment system. They facilitate easy refunds and help mitigate the risks of customers attempting to reverse their transactions.
Be payment ready.
How e-payment systems work
Here are the six fundamental steps of every e-payment transaction:
1. Customer provides account information
Using a terminal, customers insert, swipe, or tap their card or phone onto a reader. When shopping online, customers manually input their details or use their digital wallet.
2. Authorisation request sent
The merchant service provider collects the transaction data and securely sends a payment gateway request to the customer’s bank, seeking approval for the payment.
3. Request approved or declined
The customer’s bank approves the purchase if there are sufficient funds in their account; otherwise, it declines the request.
4. Authorisation or decline sent
The payment gateway sends the approval or refusal message back through the card network. The seller receives the message, and the order is fulfilled or declined accordingly.
5. Transaction sent for settlement
The merchant service provider may wait to accumulate transactions from multiple customers before sending them to various banks to request the payments due.
6. Funds transferred to seller
For each completed transaction, the customer’s bank releases the appropriate amount of money and transfers it to the seller.
Need to knows...
- Acquiring bank: This is the seller’s own bank, which receives funds from the customer’s bank.
- Digital wallet: It is a software that enables customers to store their bank details securely for making online payments, often via their smartphones. Apple Pay is an excellent example of a digital wallet.
- Issuing bank: This refers to the customer’s bank, which has issued the debit or credit card and approves or denies the transaction.
- POS (point-of-sale) system: It is software that enables retailers to process customer payments, send invoices, and manage data and stock inventory.
- PSP (payment service provider): It is a payment gateway and merchant service provider combined into one, offering a comprehensive solution for accepting electronic payments.
