How does a payment processor work?

Thursday, 23 Sep, 2021

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Many business owners nowadays look for a payment processor. So what is payment processor ? and how do they help Small and medium sized companies in the internet business? Apart from the huge benefits that payment processing services bring to e-commerce, they do help merchants and buyers avoid cyber frauds and scam transactions in the online environment. Let’s check the article below for more details.

What is a payment processor?

What is a payment processor?

1. What is payment processor?

A payment processor is a financial calculator, technically an invertible currency exchange (typically a third party) employed by a merchant to manage transactions for merchant’s acquiring banks through various channels such as credit cards and debit cards. In general, payment processors are types of software that receive payment information which is transmitted from payment gateways and process that information by verifying the validation of those payments. They are usually divided into two types: front-end and back-end.

1.1. Front-end payment processor

Front-end processors connect to a variety of card associations and supply authorization and settlement services to the merchants of the acquiring banks.

1.2. Back-end payment processor

Back-end processors take settlements from front-end processors and transfer funds from the issuing bank to the merchant bank via the central bank.

1.3. composition of payment processing services

Payment processing systems are collections of processes and technology that allow one entity to transfer monetary value to another. The essence of payment processing systems is that it creates debits and credits that transfer value using currency substitutes such as cheques or electronic messages.

Payment processing systems enable businesses to accept credit cards, debit cards, and electronic payments for goods and services. These payment processing services verify the information obtained during the transaction by sending it to the card's issuing bank or association for confirmation. Before finalizing the transaction, the sponsoring organization will implement a number of anti-fraud steps. Before the transaction may be cleared, all of these steps in the payment procedure must be completed.

Payment processing services providers should follow the Payment Card Industry Data Security Standard, according to the PCI Security Standards Organization (PCI-DSS). PCI compliance requires merchants and service providers to process, transmit, and store cardholder data securely throughout the payment process. It is critical for business owners to select PCI-compliant credit/debit card payment processing systems. To run a successful and lucrative business, the security of your clients' information is critical.

In this part, we will uncover the composition of the payment processing services. They include 3 main parts.

1.3.a Merchant account

A merchant account is a type of business bank account that allows a company to accept and process credit card payments electronically. A merchant account necessitates a partnership between a firm and a merchant acquiring bank, which handles all communications in an electronic payment transaction. A merchant account allows a company to accept credit/debit cards and other electronic payments.

1.3.b Payment processor

A payment processor is a corporation that handles credit/debit card transactions and acts as a middleman between the bank and the merchant. Simply put, the payment processor relays data from your customer's card to both your and the customer's banks. The transaction is completed assuming there are sufficient funds.

1.3.c Payment gateway

Payment gateway is a software application that collects payment information from shoppers physically like POS terminals or electronically like online checkout pages. Apart from the main function of accepting payment information from customers, payment gateway also communicates this information by encryption and transmitting data to the payment processor.

1.4. How does PayCEC online payment processing work?

The following are the fundamental procedures of how a virtual terminal payment gateway functions.

  • Step 1: The shopper picks up an item, and adds it to her online shopping cart.
  • Step 2: She places an order on your website by pressing the 'Submit Order' or equivalent button.
  • Step 3: The merchant submits the order.
  • Step 4: The PayCEC payment platform securely sends the transaction to the processor.
  • Step 5: The processor verifies and approves the transaction, and routes the transaction to the card association (Visa / Mastercard / American Express).
  • Step 6: The shopper has a Visa card. Visa forwards the transaction details to the customer’s bank, which is known as the issuing bank for approval.
  • Step 7: The issuer checks if the shopper has enough money in her account to pay for the item.
  • Step 8: The shopper just receives money from her friend, so she has more than enough money. The issuer sends a response to the acquirer (merchant’s bank), via the processor.
  • Step 9: The processor sends the status (approval or denial) of the transaction to the PayCEC payment platform.
  • Step 10: The merchant receives the message “Transaction Approved”, and the fund is deducted from the customer's bank and settled into the merchant’s bank account.
  • Step 11: The merchant gets paid for the sold dress, and the shopper has got her new item.

How does PayCEC online payment processing work?

How does PayCEC online payment processing work?

2. Why is online payment processing the backbone of internet business?

Operating an internet business mainly relies on technology. We all knew that online merchants necessarily set up online stores, even self-built websites or via third-party ecommerce marketplace platforms. However, they are struggling with how to get paid before processing the purchases, especially with long geographical distances. As long as internet businesses integrate the online payment processing system into their commercial websites, the digital transactions are valid, shipment or delivery will be activated.

2.1. Is it possible to pay in cash when delivery arrives?

In some developing economies, online shopping still accepts pay in cash when receiving orders. Nevertheless, this method may hide tremendous risks for merchants due to decision changes of customers or “order cancellation in last minutes”. Not only do you lose operation cost for the online order cancellation, but also the shipment fee. As a result, money should be paid in advance in order to avoid those risks.

Another disadvantage of paying in cash when it comes to online shopping is that global e-commerce needs to adapt with multi currencies. It is impossible to collect cash overseas or exchange other currencies payment to local currency for merchants.

Online business in cash without payment processing system

Online business in cash without payment processing system

2.2. Secure payment processing plays an indispensable part

Internet economy enables everyone to sell and buy products and services online. But there are significant risks in online transactions due to the growing fraud attacks or scams. Not only do buyers need to be protected in the digital environment but also merchants.

With reputable payment processing services, merchants are able to ease their mind in dealing with online frauds. The secure payment processing system detects any suspicious transaction, encrypt transaction data by encryption into unique code which is called tokenization. Thanks to this system, e-commerce activities can happen easily while protecting shoppers from leaking their sensitive information and preventing hacking, chargebacks for merchants.

Secure payment processing plays an indispensable part

Secure payment processing plays an indispensable part

2.3. Global payment processing in cross border business

Enterprises are all aware that multicurrency acceptance and virtual payment platforms are the key factors in terms of international business. For every transaction, no matter how small the amount is, merchants have to accept that payment to stimulate overseas purchases and then convert it into local currency. By settling a global payment processing, your website will enjoy full equipment of international payment settlement. The global online payment processing will help you collect all orders from any country all over the world, and you can withdraw in your local money.

Global payment processing in crossborder business

Global payment processing in crossborder business

3. Considerations for choosing a payment processor

The correct payment processing platform might be a blessing if you're an online merchant. It accepts a variety of payment methods and, more importantly, ensures that you get paid. When looking for a payment processor, there are things to look for.

3.1. Cost and fees

There is a payment processors list you can find on the internet. The fees and charges of each provider in the payment processors list will alter differently depending on your needs. At PayCEC, we offer merchants a variety of pricing packages tailored to their demands. Prices may change from time to time and depend on payment methods, namely credit/debit card or Bank transfers or crypto currencies. Last but not least, PayCEC offers you FREE payment processing system installment fee.

You can learn more about PayCEC fees and charges here!

3.2. Contract

Most third-party payment processors no longer require long-term contracts or charge early termination penalties; in fact, many now allow merchants to pay on a month-to-month basis. However, some merchant services require client firms to sign multi-year contracts with terms ranging from three to five years.

Don’t worry, at PayCEC, you don’t need to sign a long term contract. You are able to pay on a monthly basis, and terminate your account any time you need.

3.3. Powerful and easy-to-use APIs

We agonize over the appropriate abstractions so that your teams don't have to piece together disparate systems or spend months integrating payment functionality.

We already have composed detailed guidelines & open source documentation, so your team just quickly integrates the payment page into your website and sets up extensions without any malfunction. All our open sources are customized for WordPress - Woocommerce, OpenCart, WHMCS, etc.

3.4. Customer support

Looking for a good online payment processing provider means looking for their customer service quality. If your payment processor provider can show their professional service in 24/7 communication in various channels, you can put it into consideration. A reliable, responsive, and knowledgeable team is able to help you instantly according to your chosen communication method like hotline call, text via Telegram, Whatsapp, Skype or email & live chat on the website.

3.5. Diverse payment options

The more electrical payment methods you accept on your website, the more opportunities you close deals from online customers worldwide. Nowadays, digital payment has evolved extraordinarily into different options. A competitive payment processor should offer multi types of payment including credit/debit card, e-wallet, bank transfer, cryptocurrencies.

4. PayCEC - The best payment processor for SMEs

PayCEC makes moving money as simple, borderless, and programmable as the rest of the internet for ambitious small and medium-sized businesses and startups all around the world. Our staff work from offices all around the world including Singapore, the US, Canada and Europe, processing hundreds of billions of dollars for startups and SMEs each year.

We are also a fintech startup, therefore we understand the challenges that many startups face at the beginning of company establishment. That reminds us to always keep in mind a startup spirit and be friendly with all clients, especially SMEs. We are confident that PayCEC is the best payment processor for SMEs and we commit our high quality of service throughout customer journeys.

PayCEC - The best payment processor for SMEs

PayCEC - The best payment processor for SMEs

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About PayCEC

PayCEC international payment gateway was established in response to the growing need of businesses to accept online payments more quickly and easily. In the digital era, our payment flow has evolved to work seamlessly and effectively across all platforms and devices. We pride ourselves on combining superior technology with first-class customer service.

PayCEC international payment gateway is a truly global payments platform that not only allows customers to get paid instantly and securely, but also withdraws funds to their business accounts in various currencies.

We have created an open and secure payments ecosystem that entrepreneurs and businesses choose to securely transact with each other online and on any device. We proudly maintain the highest level of client advocacy in the industry.

PayCEC Team


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We are honored to serve as your reliable business partner and financial service provider in the industry and other business-related services. With the help of our professional staff, to help merchants to achieve their goals for the development and expansion of the international business market.

Our payment flow has developed in the e-commerce world to perform seamlessly and effectively across all platforms and devices. We take pleasure in combining technology with customer service, to solve your concerns at the moment.

PayCEC is a fully worldwide payment network that not only allows merchants to be paid immediately and securely, but also allows them to withdraw money in multiple currencies to their company accounts.

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