Banks are still at the core of the payment processing systems, which is largely responsible for settling of accounts of credit card or wire transactions, and other aspects of the transfer of funds in exchange for goods and services how to start a payment processing company. The process is changing rapidly as other institutions have become involved in the payment process, and banks no longer have the monopoly that they once did.
The payment processing systems usually involves a series of complex transactions, with more than two parties. During credit card transactions, the payment processor will be contracted by the merchant, to assist in processing the transaction on behalf of the banks that acquire the credit. There are two types of processors and they operate at either the front or back end of the process.
Front-end processors will normally be connected to the card issuer and would be involved in the authorization and settlement of the transactions. The processors that operate at the back-end, would be involved in accepting the settlements, and transferring the credit amounts to the merchant bank from the bank that issues the credit.
In order to facilitate the process, a merchant account is needed. Real-time online payment processing provides rapid and secure ways for merchants to be paid for their goods or services. The almost instantaneous methods offer some protection from fraudulent purchases as verification is necessary before the transaction is completed.
Online payment processing, benefits, not only the merchants, who receive almost immediate payment for the goods or services that they offer, but it gives the customers the convenience of making immediate payments. Perhaps the most popular medium for transferring the payments, is with the use of credit cards, and without a way of accepting credit card payments, the merchant may be doomed failure.
One of the biggest benefits of online payment processing is derived from the ability to keep track of the different types of payments. With a reliable merchant account, you can easily gain access to processes such as automated payments and recurring billing, which can all be used to increase the profitability of your business, as customers can grow to appreciate the convenience.
Online payment processing is now at the heart of ecommerce, as it offers consumers the convenience of a fast and secure method to pay for purchases with a debit or credit card. It also helps merchants by efficiently handling a large volume of transactions. The process may appear instantaneous, but it actually involves a number of different transactions.
The payment processor will request verification of the validity of the card, from the bank that issued the card. When verification has been confirmed, the details are then sent to the merchant through the payment gateway. The merchant is then obligated to complete the process. If verification is denied, the merchant is also informed, where the transaction will be denied. Because payments are processed at a much faster rate, the merchant will now have a much improved cash flow, with which she can manage her business.
Retail payments for goods and services have evolved from using cash to checks, and other payment methods such as credit and debit cards, and now is moving toward banking with smartphones. A check was normally written from one party to another, and requests the payers financial institution to pay a specified sum on demand. The process may have been secure, but was seemed to be overly cumbersome, and is becoming much too slow for the rapid moving world in which we now live. It is now undeniable that payment by checks is being replaced by more efficient payment processing systems.
The system may have been dealt a death blow, when the Check 21 act or Check clearing for the 21st century encouraged the use of electronic check clearing as a method for payment processing. This included printed images of checks that can be used for payment processing in place of paper checks.
Additionally, the ACH, or the automated clearing house, was developed to truncate the checks, and make the payment electronically. In truncation, the information on the check is captured, and processed electronically, and the check is not returned to the writer. You may consider yourself fortunate, if you are one of those that still receive a paper check as means of payment instead of an electronic deposit.
Large dollar volume transactions between domestic or foreign institutions are usually settled in real time through the Clearing House Interbank Payment Systems (CHIPS). With global transactions increasing exponentially, both in value and number, as the world becomes more closely interconnected, the number of checks being written, has declined precipitously.
More people are using electronic banking, including direct deposits, pre-authorized payments and online banking as a form as a prelude to payment processing. In 2007, according to recent from the Federal Reserve, about 70 percent of the checks were cleared on paper. The expectation is that in the very near future, approximately 75 percent of all payments will be non-cash payments.
Another factor contributing to decline of checks, is banks are now offering online accounts, because routine transactions such as deposits, withdrawals and transfers, can all be handled online or at an ATM. In some countries, the numbers of checks continue to decline more than 20% each year and many merchants no longer accept them. In the uk, the payments council board has agreed to a target date of October 31st 2018, to close the central cheque clearing, and is working toward having fully compliant and efficient systems in place.
The conversion of paper payments to electronic payments may face some obstacles in the U. S. There are thousands of financial service providers, and hundreds of thousands of billers, who may not have the resources or the technology to provide a seamless network for billing and collections.