What is Payment Processing? At its core, payment processing boils down to the automation of electronic transactions between a merchant and a customer. Payment technology helps process, verify, and accept or decline credit/debit card transactions through specialized hardware and software.
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The Major Players The Issuing Bank The issuing bank provides the customer with a credit card. For example, if you have an account with PNC Bank, you most likely received your credit or debit card from them. This makes PNC the issuing bank, who receives most of the interchange fees charged by the card brands.
Card Brands Visa®, Mastercard®, Discover®, and American Express® fall into this group. These companies work with governments to determine the rules regarding card use, acceptance and security, and interchange rates.
Processors The processor helps transmit payment data to the card brands and banks. Merchants are connected to processors through the hardware or software they're using. When a merchant runs a transaction, the processor routes the information to the appropriate network, and when a merchant 'batches' (or closes out for the day), the funds are moved from the issuing bank to the merchant’s bank. The processor will then calculate the interchange fees and send the data to the merchant and the card brands.
Payment Gateway A payment gateway connects payment technology (i.e. terminals, shopping carts, etc.) and the card processing networks. While gateways can be integrated into a merchant's existing solution via an Application Programming Interface (API), many processors have their own gateway as well.
Sponsor Bank The sponsor bank is responsible for sending funds to the merchant and ACH payments to the processor. They are also responsible for paying the card brands and the issuing bank their share of the interchange fees.
Types of Payment Acceptance Payment Terminal This is the traditional method for accepting credit cards. A merchant can swipe, dip, or key-enter transactions into the device. Newer Near Field Communication (NFC) technology allows many terminals to accept payments directly from a smartphone via apps like Apple Pay or Android Pay.
Point-of-Sale (POS) Terminal A POS system is similar to a terminal but is tailored to meet the needs of specific business types. A salon POS, for example, might want to offer an appointment scheduling feature. MOBILE PAYMENTS Mobile devices can process payments in a variety of ways: the merchant can swipe or dip cards with hardware plugged into their phone or tablet, and they can also key-enter transactions using an app or browser on their device.
Virtual Terminal Virtual terminals are a software or web-based solution that allows merchants to process payments from their desktop or laptop. These can be used for both card-not-present and card-present transactions when paired with a device for swiping or dipping credit cards.
Online Payments Merchants can process transactions through a website or mobile application via a shopping cart or a hosted payments page. These tools make it simple for businesses to run an online storefront or accept online payments for B2B transactions.
Interchange Fees & Interchange Optimization Interchange fees cover the cost of authorization, clearing, and settlement services. They are paid or collected by the card-issuing banks that provide Visa, Mastercard, Discover, and American Express cards. These cards are typically consumer credit or debit cards, but can also be corporate, business, purchasing, or rewards cards. Each card brand has its own interchange rates and when combined, there are over 300 different levels of interchange.
Utilizing an integrated solution that leverages interchange optimization is crucial for merchants aiming to minimize costs. Propelr automatically optimizes every transaction, ensuring you always meet the criteria for the lowest possible interchange fees.
Integrated vs. Non-Integrated Payments Integrated Payments Defined
Comparing Integrated Payments to Standalone Payments Standalone payment solutions are separate applications dedicated solely to processing payments. This means that end-users need to switch between different applications to perform any payment-related tasks.
For many businesses, embracing an integrated payments solution can streamline operations, increase customer satisfaction, enhance security, and optimize cost savings. For more information on why many software providers are turning to integrated payments to turbocharge their business, check out this blog post
If you still have unanswered questions about anything payment-related, don’t hesitate to reach out to our team at hello@propelrpay.com . We’re always happy to talk about payments and act as your trusted resource! 
