Payment Processing Fees–Who makes ?How much money? – Per Transaction
To understand who is paid to process a single payment transaction, let's understand who are the main players in the process .
Here are the main players in the payments process:
- Card Holder - an account holder who owns Debit or Credit card, particularly a Plastic Card
- POS or CheckOut - The time and place where a retail transaction is completed.
- Merchant - This is a store or a vendor who sells goods or services to the cardholder.
- Payments Gateway – a logic entity that routes the transaction information between POS or CheckOut to the relevant payment processor or another PSP.
- Vault or Card Vault – Secured and encrypted environment where PANs and their tokens are stored and kept.
- Processors – Presumably there is enough fund on the bank account, clearing funds from the Card Holder and settles on a bank account .
- Acquiring Bank/Acquirer - The acquiring bank is responsible for receiving payment authorization requests from the merchant and sending them to the issuing bank through the appropriate channels and these channels are card networks.
- Card Networks – Visa , Master Card, Amex, Discover, CUP, JCB, Debit – as know as Card Brands
- Card Issuers – Banks …BOA, Capital One, Citi Bank – Financial Institutions that provide the cards to the card holders
Since we are more or less familiar with the main players or actors in the payments processing , we are ready to understand what is their job and later how much do they make and even why.
What is Payment Gateway and what does it do ?
Our first player that a merchant needs to pay to in the process is called Payments Gateway. Here is some history that is very a few people remember. Before companies like PayPal ,BrainTree and Stripe were exist , for a business to be able to accept credit cards was almost impossible. To accept credit cards , a business needed to apply for a merchant id or merchant credentials and to go through an underwriting process, pretty much like to take mortgage. The Payment Processors did not deal with merchants that processed less the 1 million dollars per day, has their own IT department, going through their PCI Compliance certification audit on the annual base and this is just an example .
A lot of people in the world are confused and don't understand what does this player do. So please let me surprise you with something you always knew but did not think about. Yes, PayPal, Square, BrainTree and Stripe the most known Payments Service Providers on the earth are actually Payments Gateways .
So what is the role of Payments Gateway is a constant argument. People in the Fintech or Merchant Services industry like to call this player as a handyman. Basically, this player does what we don't want to deal with.
So here is a list of some of the functions that Payments Gateway does :
- Simplifies Integration process for non-technical people to start their online business within several clicks.
- Reduce development effort for professionals
- Reduce scope of PCI Compliance
- Caputes and settles funds for different bank accounts
- Shortens applying and underwriting process from weeks of waiting to a couple clicks.
- Rules engine for various of transaction types
- Checking frauds against different fraud prevention tools and services if paid for.
- Managing different financial and settlement reports
- Managing a lot of high-lifting for merchants
Most important that since something like Payments Gateway was introduced to be able to accept payments in eCommerce became a way more easier than it was before. By a couple of clicks you can have a merchant ID from Stripe, Braintree and several others .
What is Payments Processor and what does it do ?
Our second player that a merchant needs to pay to in the process is called Payments Processor. Wow , this player is the player that the most close that a merchant could come close to process a payment using his PinPad in store that is maybe is attached to his POS (point of sale).
There were several big Processors like FirstData , WorldPay, Chase Paymentech ,Heartland and a very a few more in the US market .Like I mentioned before these PSPs did not deal with SMBs , but mainly big retail corporations that that can commit to process not less huse volume of transactions .