When you first start accepting payments as a business, it’s worth familiarising yourself with a few of the payment terms.
What is a payment processor? What’s a payment gateway? What about a payment service provider? All these terms can be a bit confusing at first, but they all play an important role in the purchase experience you offer your customers. We’ve put together this short guide to help you understand what each of these terms means and which ones should be given priority.
Put simply, digital payments are electronic money transfers that take place online. You are essentially exchanging your goods and services for payment from your customer. This used to take place only in person, but with digital payments forecast to reach a total value of nearly $5B in 2020, online is quickly becoming the norm rather than the exception.
How does an online payment work? A digital payment usually involves a few key “players”: a merchant account or acquiring bank (your business account), an issuing bank (your customer’s account), the payment gateway and the payment processor.
The digital payment itself is made up of two stages: authorisation and settlement. Before a transaction goes through, the payment first needs to be authorised. This authorisation is the communication that happens between the issuing bank and the credit card network (Visa, Mastercard, etc). The authorisation makes sure there are enough funds in the issuing bank to send the amount. Once the payment is authorised, the funds are sent from the customer bank account to the credit card provider - this process usually only takes a couple of seconds.
Once the credit card provider holds the funds, it kickstarts the next part of the process: settlement. Visa or Mastercard sends the payment to your merchant account, which is a process that can take a few days depending on the network and currency used.
An online payment processor works just like a physical payment processor but instead operates online. The payment processor acts as a third party to process your online payment - think of it as the middle man between your business account and your customer’s account.
Payment processing companies authorise the payment with the credit card network and then process the transfer. It also makes sure that the payment is secure, encrypted and meets regulation and compliance requirements. The processor will also take care of accidental transactions or any issues such as chargebacks.
This payment gateway is the software used to communicate between the merchant account and transaction information. While the processor focuses on moving funds from the buyer account to the merchant account, the payment gateway provider moves the actual transactions from one API server to another. You don’t really need to understand the technical side: just know that both play an important role in processing a payment.
Many platforms like Shopify and Magento offer integrated payment processors: this means they offer a platform to sell items online that already has a processor and gateway integrated into the shop. Unfortunately, the main issue with these types of platforms is that they charge high fees and can cause confusion. Platforms like Pomelo Pay offer a free customisable online shop that is incredibly straightforward to use and only charges a 1.49% transaction fee!
Payment service providers offer a full third party payment service (gateway and processor) that allows merchants to accept payments online. Sometimes those are integrated as both a merchant account and payment gateway, which makes it easy to collect and manage payments.
Pomelo Pay is a payment service provider, and we help manage the entire payment transaction from end to end. This process starts with the customer initiating payment and we then take care of the rest so the payment is authorised and then settled to your merchant bank account.
As a payment service provider, we connect your merchant account with your customers through an interface which allows you to accept all types of payments quickly and smoothly.
What makes us unique is that we offer payment processing through QR codes. This makes accepting and managing payments a lot more convenient and smoother. The process looks like this:
1. You print your QR code in your shop or display it on your website or in an email.
2. Your customer takes out their smartphone and scans the QR code (every modern smartphone can scan QR codes with their camera app).
3. Your customer is then automatically taken to a payment page or online menu where they fill in their card details and authorise the payment through Pomelo Pay.
4. We help authorise the payment and transfer the funds from the issuing bank to the credit card provider. We ensure the transaction meets compliance requirements and is encrypted.
5. The credit card provider transfers the funds to us and we deposit them into your merchant bank account the next working day.
With Pomelo Pay, you can accept Apple Pay, Google Pay, Visa and Mastercard payments. We take care of the entire payment process so you can focus on doing what you do best: managing your business. 💪
A few benefits of using Pomelo Pay are:
It’s cheaper: with Pomelo Pay, you just need our app to get started. We offer a free online ordering system and online shop, and only charge 1.49% transaction fee. This is different to other payment processors and service providers that ask for a monthly fee, set up fee, processing fees, chargeback fees and more! 💸
Highly convenient: with QR codes, you customers just need their phone to pay. No more hassle searching for cash, credit cards or wallet!
Safer and more secure: QR codes are safer than both cash and debit card payments. That’s because QR code transactions are encrypted and tokenised. QR codes also encourage customers to pay from a safe distance, which can help businesses stay open during lockdown.
QR codes are a great way to accept payments if you work on-the-go as a tradesman and need to go into clients’ homes, or if you operate a takeaway or restaurant and want to remain open throughout a local Covid lockdown.
Payment processors, gateways and service providers are essential pieces of the payment experience. By picking a service provider that streamlines the process but is also affordable you’ll have the mental space to focus on what matters most: working in your business. Want to get started with QR codes? Join us below!