NEFT vs RTGS vs IMPS vs UPI? Best Payment Method Around The World?
Every single day you take your credit card or debit card and you swipe it all over the town. Do you really feel comfortable giving all your information to target, Best Buy, D Mart, Big Bazaar or any other shopping places? What if there was a way to pay without transferring any sensitive data. Well, there it is and it’s called Tokenization. What is Tokenization at its most basic level? It is replacing data with surrogate or temporary value.
By replacing data with a surrogate value, a user is ensuring that any hackers or thieves who might get a hold of the information are unable to use it for any real purpose. Creating a surrogate value is really as easy as coming up with a random string of numbers that can be matched back to the original string using a database. For example with this credit card here, you can create a surrogate value that has absolutely no relation to the original card number and then it can be matched back to the original card at a later time. So, what would it use case B4 tokenisation?
Well, you see when you swipe your credit card at a terminal at your favourite margin, you are transferring valuable data over to that merchant and entrusting them with your PAN, also known as your primary account number or just the number that shows up on your card. Your full name, your address and even the expiration date on your card. So, we get it, you get it, Tokenisation is a more secure method. You don’t need to give the merchant your real card number or any of your information, all you need to give them is this face value.
But, you are still wondering how does this even work? Well, with the emergence of new mobile payment solutions, such as Apple Pay and Android Pay, Tokenization has never been easier. Tokenization is not by any means an easy system to implement. But, these big players in the market have been able to come in, make agreements with the banks and implement tokenization across the market. And, make it available to everyone. So, it all makes sense in theory, we should be able to go to our favourite merchant and we should be able to pay using tokenization. We should be able to have that peace of mind that we are not handing over our credit card number. But, how does that work? You can’t just hand them a random number expect your bank account to be charged.
Well, it’s a complex process with a lot of different parts involved. But, we believe, we can understand it, the first piece is that the merchant you are going to it, must support mobile payments. Usually, this is depicted by three little lines on top of the terminal and maybe a logo for Apple Pay or Android Pay. So we go to the merchant and we pull out our phone, we have got android pay on our phone and we are looking to pay.
Well, the first thing that happens is our android phone communicates with Google or if it would be Apple if you are using Apple Pay and it gives Google my Pan or my personal account number. Next, Google communicates with my bank, as they have a good relationship and asks my bank could you please give me a token so that blog next owner can use this set of merchants. The bank agrees and gives Google the token, Google, in turn, gives to our phone, who will give it to the merchant using NFC or near field communication. The merchant checks with the acquirer. The acquire is MasterCard, Visa, it’s your cardholder. They acquire with a good relation with your bank, checks the token with the bank, the bank will look in its secure vault.
This vault holds all the tokens and matches them up with the real pan or the personal account number. If there’s a match, the bank lets them acquire, know in the acquire, let’s the terminal know the terminal. In turn, finally, let’s your phone know you will get a verification that the payment has gone through. At this point, your bank is free to charge your account and the merchant never saw your card number. So, that’s it. That’s the tokenization. But, come on, let’s see it in action. We are going to gon on a quest of how you can use tokenization.
You are looking to offer your customers a safe and easy way to pay online. Since all payment processors are not created equal. It’s a really good idea to know the ins and outs of how online payment functions from start to finish. So, you can avoid pitfalls and make the most effective choice to protect and grow your business. The main players in an online payment are you and your customer. To accept credit cards from customers, you will need a couple of things – an internet, merchant account and a payment gateway.
On top of that, you can also choose to include an alternative payment method like PayPal to service those customers who shy away from using credit cards. Once, those pieces are in place, here’s what happens next. A customer makes a purchase from your checkout page by submitting their payment information that information is then sent to the payment gateway. The Gateway then encrypts the payment information and shuttles it to a series of approved payment processors. And, networks for authorization where the payment is either accepted or declined.
That decision then shoots back to your customer and all that flurry of activity takes place in about two seconds. The final step happens after the Gateway sends the transaction to the payment processors and the money is transferred from the customer’s back into your account. So, as you have seen a payment moves through several parties often with varying providers for each transaction, since things can get really complex.
Really fast, some payment solutions make things easier to manage by offering everything you need to be bundled together into an all-in-one solution. If you already have an internet merchant account, some solutions allow you to use a gateway to accept credit cards and offer the option to add alternative payment methods. There are in fact, all kinds of different solutions out there before you decide on the best online payment system for your business make sure the solution you choose provides solid answers to the following questions.
First – is it secure search for a payment solution that’s PCI complaint has a trusted name and make sure it’s safe with systems that have never been breached. Second – is it reliable look for a solution that’s always available with backup systems in place and finally, is it easy to use – you will want to get up and running quickly so your solution should be easy to integrate and flexible with accessible technical support and resources. So, it can meet your needs as your business grows and to keep things easy for your customers, make sure you can accept an order on your website in online marketplaces.
Over the phone and even in person, when making this important decision, it’s worth taking the time to find a payment solution that provides the security, reliability and ease of use needed to continue earning high marks from your customers. As your business enters the world of online payments. Are you having trouble understanding your merchant account? Are you confused about the rates and fees and how you are being charged? If so, this article is written for you only. This will explain how it all works. You don’t need to know every little detail about credit card processing, you just need to know enough to delegate the task provider that will take care of everything for you.
Nevertheless, it’s important to understand the fundamentals. So that you can properly make a provider selection in the next couple of minutes. We will discuss the merchant account transaction cycle and how it works. Interchange and its role in the process. The two main pricing structures and how they compare to each other and at the end, we will give you a couple of ideas on how to best select a provider that fits your needs? Let’s look at the transaction cycle first. The customer presents a card to the merchant for the purpose of goods or services. After the card is swiped are entered into the point of sale software. The processor sends out for authorization through payment processing network.
The issuing bank approves or declines the transaction. Based on funds available, the transaction is then passed through the electronic networks to the processor and the approval code is delivered to the point of sale device at the merchant location. The issuing bank then sends the money to the processing company to reimburse them for the purchase that was made. This whole process is completed in just a matter of seconds at the end of the day. The merchant will send out all of their transactions referred to as a batch to the processor.
For money to be deposited into the merchant bank account and finally, the issuing bank will send the cardholder a bill for the purchase. What is interchange and what role does it play. Interchange is scheduled fees that determine the price for all credit card transactions. There are hundreds of interchange levels and each is comprised of a set of qualification requirements that must be met for a transaction to fall into a certain category. The two main qualifications requirements are number 1 – how the payment is accepted whether its face to face or over the phone.
For example and the second is the type of card that is used, whether it’s a consumer card or a business card for example. Individual rate categories are set by Visa and MasterCard and the Interchange scheduled fees are published and could potentially change two times per year. This is important to remember since those changes can affect the cost of your merchant account. Here’s a sample of just one part of a schedule of fees published by Visa. As you can see, there are 13 rates and eight categories in this example alone.
Again, in any single transaction, just one of these rates are charges based on the qualifications of the card that was presented. Let’s look at two main pricing models and the components of both of them. Most providers will offer the following price structures, number one – tiered pricing is also known as bundled or bucket pricing and the second is an interchange.
Also known as cost-plus or pass-through pricing or interchange plus. To compare these two pricing models, let’s first look at how the two pricing structures are related. First off interchange costs are at the core of both pricing models. The fees for any given transaction are broken down into two main categories interchange costs along with dues and assessments and processor costs. Dues and assessment are paid to the card networks which is Visa and MasterCard and are the same for everyone.
As our interchange costs, they are absolute and every processing company pays the same amount for interchange dues and assessments period. They cannot be changed or discounted for special situations or for any reason. So whether you are a fortune 500 company processing billions of dollars each year. Or a hobby business with just a couple thousand dollars in volume. You pay the same fees from now on when we refer to the Interchange. It is assumed that dues and assessments are included. Since we understand that they are the same for everyone.
The processor cost is the one variable that differs from one processor to the next and is the only area open for negotiation in your search for a merchant account provider. Here’s both pricing models in detail with your choices are tiered pricing or interchange plus tiered pricing. It takes hundreds of interchange categories and lumps them into bundles or buckets. The three common tiers are qualified, mid-qualified and non-qualified and as you can see from the chart, the rates increase as you move from qualified to non-qualified.
Each of these tiers is set and assigned a specific rate by the processing company and can vary from one provider to the next. In fact, they often do what is considered to be a qualified transaction with the provider. It might fall into a mid-qualified transaction with provider B. Tier pricings sorts the hundreds of interchange categories and each tier prices high enough to cover the average of all of the rates and fees that fall under that tier interchange-plus pricing passes the actual interchange cost through to you.
And a small provider charge is charged also referred to as provider markup. This fee varies widely based on a variety of factors and can range from five basic points upto one point five per cent or even higher. Here’s a sample transaction refer to the visa interchange chart that we looked at earlier. And, let’s compare a single transaction at a qualified rate of one point seven nine under a tier-based program to an interchange-plus pricing program.
With a processor costs of 20 basis points, assume the following for the transaction, the interchange cost is 1.65%. Plus a 10% transaction fee. And, we will use a hundred dollar transaction as the sample dollar amount given those two variables, we know that the actual cost of the transaction is one dollar and seventy-five cents for the interchange-plus pricing model. You have 20 basis points added to the one dollar and seventy-five cent actual cost bringing the total to one dollar and ninety-five cents for the tier-based pricing model.
You have that same base cost of one dollar and seventy-five cents but to get the total cost for a tier-based pricing model, you simply multiply the hundred dollars times the one point seven nine per cent i.e. 100×1.79%. The rate assigned to that tier level to get the dollar and 79 cents total cost as you can see interchange costs is at the core of each of these pricing models. And with any pricing model for that matter and is paid one way or another, so in this example, you can see that with the interchange-plus pricing model, your total cost is one dollar ninety-five cents compared to the one dollar and seventy-nine cents with the tier-based model.
In either example you can see that only a small electronic item in the world piece of the total fee is paid to the processor as most of the fee is sent back to the issuing bank. Provider costs are collected to pay network. Fees and other general business costs such as administrative expenses associated with accountant servicing application approval and costs related to licensing the electronic payment networks for each transaction. This same calculation is done depending on the pricing model that you are currently paying. It’s widely assumed that interchange plus pricing is a better pricing model.
Because it’s said to have a true cost or a transparent pricing model. But, does not necessarily mean that it’s a lower overall cost variable such as average ticket and the number of transactions processed. Each month in addition to the pricing structure variables that we discussed already determine whether tear or interchange plus pricing is best for your company merchant account. Pricing is not one-size-fits-all in the end. What matters the most is the total dollar amount and fees paid for accepting a certain dollar amount of credit card volume.
If you are interested in more tips, advice and ideas on how to best structure your retail or e-commerce merchant account, head over to our next article. A payment gateway is a software application that payment service providers use to process payments or online purchases. Originating in a merchants website it acts as an interface between the merchant’s website and a payment processing bank known as an acquirer. Generally, a gateway can be used for many types of payment methods but for the purpose of this article we will solely focus on online credit card payments.
The gateway encrypts sensitive credit card details to ensure that information is passed securely between the customer, the merchants and the acquiring bank. When a customer purchases a product or service on a website that is connected to a payment gateway, the gateway performs a variety of tasks to process the transaction. Once the customer places their order on the merchant website, they choose to check out and pay and are then redirected to a payment page to enter their credit card details. If the merchant is fully compliant with the necessary security standards, the payment page can be generated on the merchant servers and the cart information collected and passed onto the payment application securely. The payment page can also be generated by the payment gateway application itself. And, information can be collected there.
Entire details can be done to Either way the card and transaction details are gathered and stored on the secure surface of the payment gateway. From there, the payment gateway processes the transaction and sends all information to the issuing bank for approval via the acquirer. And the relevant card scheme, once the payment has been confirmed by the card schemes, the payment gateway sends the approved transaction back to the merchant’s website and then the merchant informs the customer that the purchase has been successfully done.
Of course, the payment gateway performs a lot of other tasks as well, but when it comes to credit card payments, these are the main steps to a processing a transaction cable. Ease of this entire process only takes around three seconds. It took us about ten times the amount of time to explain it to you. Payment gateways add a whole load of value throughout this process. Here are some of the key features – A payment gateway is the most common way for a merchant to connect to the payment system.
Only the largest merchants can connect to an acquiring bank directly. Gateway transaction fees are very small compared to the advantages they offer in helping a merchant connect to an acquirer, manage their business and control the risk. Associated with the accepting online payments, a good payment gateway will provide the merchant with many customizable reporting options which help the merchant to manage their business. A good payment gateway will be connected and able to process many different payment methods that may not yet to be offered by the merchant. Emergent pay has its own highly secure PCI, DSS level. Level 1 compliant gateway check out our website to learn more.
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