It is not always easy to process payments. You may not realize how many twists and turns it takes to get your funds from receiving payment by credit card to accepting payment. What can these twists and turns mean for you? Many merchants don’t know this. This knowledge is especially important for businesses that operate in high-risk sectors when looking to open a payment processing account.

Each party involved in the payment process, which can include a few dozen or more, receives compensation for their participation in the authorization and settlement process. These charges can quickly add up, especially if additional entities are involved in the process.

Here is a list of all the major parties involved in payment processing. It includes how merchants make money, and what you should know to evaluate your payment processing relationships.

It Takes A Village

The entities and actions involved with a payment transaction look simple at first glance: you as the merchant or supplier and your customer. The customer purchases and you sell. However, there are many financial institutions and service providers that can help make this process run smoothly.

The sponsor or acquiring bank. Merchant accounts are maintained by a financial institution. An acquiring bank is responsible for depositing funds earned from credit card transactions into your merchant account. MerchantE has relationships with many sponsor banks.

The Issuing Bank

The cardholder is the financial institution that issues a credit card account. When customers use payment cards to make purchases, the banks that issue the credit card authorize the transaction and deposit the funds to the receiving bank.

Card Networks

Visa, Mastercard and American Express are the credit card brands. Union Pay is another. The interchange rates an acquiring bank pays to a card issuer bank every time it facilitates a transaction with a credit card are set by card networks.

Payment Processors

These companies are third-party and send payment information to credit card networks and forward authorization and settlement funds to the receiving bank. Sometimes, there are two types of processors involved.

• The front-end processors connect to different card associations to facilitate merchant authorization.
• Back-end processors receive settlement funds and forward them to the acquiring banks within a specified time frame.

MerchantE

MerchantE is one the few end-to–end payment processors that can perform all of these functions. End-to-end processors have visibility into the entire process. This allows them to help merchants when they need it. A single processor also means that fewer transactions are charged to the processor, which means that merchants have fewer fees.

ISOs and ISVs

Independent sales organizations (ISOs), and integrated software vendors (ISVs) are two types of independent sales organizations. ISOs are credit card processing resellers for businesses. They partner with processors or acquirers to resell merchant payments services. Software providers who integrate their software with a payment processor allow their customers to accept payments directly within their software. ISVs often refer customers to payment processors.

Payment Gateways

Transmit payment data securely to a processor for online transactions. MerchantE is an end-to–end processor that eliminates the need for third-party payment gateways.

Each entity makes money in its own way, some in more than one. Banks and processors make their main income from flat, per-transaction, volume-based and/or volume-based charges. Merchant service sellers and refers typically earn commissions and referral fees. Credit card networks make money from assessment fees. The number of parties involved can vary so the total fees for payment processing may vary depending on the payment processor.

Risky Business

Accepting credit cards means you accept risk. Merchants face declines which can discourage customers and could cost them sales), chargebacks and fraud. They also include non-payment on the bank and credit card side.

Interchange rates reflect this risk, not surprising. There are lower interchange rates for debit cards, consumer credit cards and swiped transactions than those for credit cards and business credit cards.

High-risk businesses can also be classified as such. High-risk merchants can be tagged for a variety of reasons. They could have lost their merchant account before due to an unusually large number of chargebacks, or they may not have a credit history or bad credit. Or they might be high-value transactions where fraud is costly.

The nature of the business is another reason businesses can be considered high-risk. Businesses that are subject to sales age restrictions, regulated or are targets of fraud are all considered high-risk. High-risk businesses include CBD and firearms and ammunition, telemedicine, pharmacies, credit repair and online gaming.

High-risk companies are not often able to obtain a standard merchant account from acquiring banks. These businesses require a high-risk merchant accounts, which often means higher fees and restrictions. Many banks won’t accept high-risk customers, even though they may make more, and so their options are limited.

Knowledge = Power and Often Savings

Understanding the payment process and who is involved in a transaction using a credit card can help you make better decisions that will have an impact on your business’s financial health.

Get a full-service payment processor

It is possible to save money by using a payment processor that handles the entire payment process, from authorization through settlement. It will take you less time to find the right entity to help you with funding and approvals.

Learn how to deal with high-risk payments

A reliable and secure credit card processor is a great way to reduce fraud and improve financial standing for high-risk companies. A business that is high-risk does not necessarily mean it is unreliable. A reliable payment processor can help businesses in all industries.

Acceptance of electronic payments is crucial for sales and growth

This is especially true when you are building an ecommerce site. With credit and debit card usage increasing, an organization that cannot accept payment cards will be left behind. For businesses that have been deemed high-risk, it has been difficult to secure a merchant account, and often expensive. Partnering with the right payment processor can make it easier to build a business and offer customers preferred payment options.

Balanced Payment Partners can help you choose the best payment system for your business. We also help you to analyze your merchant account requirements, business goals and long-term objectives. You can find out more about us online, via email [email protected] or call (800) 354-6256 if you’re ready to help grow your business with credit card processing.