Payment Processing Vs. Credit Card Processing -What’s The Difference

In the business world, there are many different ways to process payments. Two of the most popular methods are payment processing and credit card processing. Both have advantages and disadvantages.

It’s important to understand the difference between them before deciding which is right for your business. Payment processing is a more traditional method of accepting payments, while credit card processing is a newer method that has become more popular in recent years.

In this article, we will explore how both of these have evident differences.

What’s Credit Card Processing?

The internal operations involved in credit card processing include a multi-step process necessary to complete payment transactions. These can be done online, over the phone, or in person.

Credit cards are the most popular payment method for European consumers. According to a website, more than 1.6 billion U.S dollars were spent in the U.K. using credit cards in 2010.

What’s A Payment Processing Service?

A payment processing provider is necessary to help your business. The payment processing service providers offer customers payment options via debit or credit cards.

They work with all parties to ensure that the payment process is efficient and seamless for merchants and customers.

They are responsible for completing various tasks, from authentication to payment settlement. They ensure businesses get their money in their bank accounts from any transaction that doesn’t involve paper money. These transactions include payments such as credit cards and debit cards.

Payment processors serve as intermediaries between customers and merchants. They are an integral part of the global financial system.

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A payment processor distributes funds to merchants and the issuing bank. Network payment processors can accommodate data flows between all parties.

These entities synchronize all non-cash transactions and validate all information. Once a sale has been completed, they also distribute funds to businesses.

A payment processor distributes funds to businesses and the issuing bank. Network payment processors can accommodate data flows between all parties involved in the same business.

Credit Card Processing: How Does It Work?

To pay, the customer must first present their credit card information. Customers can swipe magnetic stripe cards in-store and dip EMV chip cards. They can tap their cards and smartphones to use digital wallets such as Apple Pay mobile payments.

Consumers can also use debit and credit cards online via websites or apps called payment gateways. A virtual terminal allows secure and encrypted credit card processing via a personal computer or phone.

The processor receives the payment information and communicates with the bank via the appropriate card networks such as Visa or Mastercard.

The transaction is then approved or denied by the customer’s bank. Approval depends on details such as card validity and sufficient funds.

This approval is sent to your credit card provider and your terminal/credit card reader. Approved transactions are usually settled at the end of each day.

The transactions are charged to your customers’ accounts. Deposits are then made into the company’s bank account.

Payment Processing: How Does It Work?

Payment processing services include authorization, funding, and settlement of transactions. The customer pays for the item or service using their card at the point of sale (POS). Transactions can take seconds or may even take a minute, depending on your credit card service provider.

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The company requests authorization from its payment processor. Once that is done, the processor will take the necessary steps:

  • The card association is connected to the payment processor, which submits the transaction.
  • Based on specific criteria, the issuing bank accepts or rejects a transaction.
  • The issuing bank responds to the company’s bank, indicating whether it approves or rejects the transaction.

The next step is funding and settlement. This is where the transaction gets deposited into the company’s bank account. The company then sends the authorization request to the payment processor.

The processor then forwards the details to the credit card company because the card is linked to the bank. The banks receive details about the transactions and proceed with the process.

  • The cardholders pay a fee to the issuing bank for each transaction.
  • The company’s bank receives the amount transferred by the issuing bank, less the interchange fee.
  • The amount is transferred to the company’s bank.

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The Main Difference Between Credit Processing and Payment Processing

Credit Card Processing

  • Credit card processing is a technology that encrypts and transmits payment details to credit card providers. The transaction depends on the credit card provider, who can reject or approve the transaction at any point.
  • While credit card processing is most commonly used for eCommerce transactions, it can also be used to receive payments using a credit card reader or POS system.
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Payment Processing

  • The payment processor relies on transaction details between the customer’s bank (that issues the card) and the company’s bank.
  • All card-based transactions require payment processors, regardless of whether they are done online, in person, or via a mobile app.

What Is The Difference Between a Payment Gateway And a Payment Processor?

Payment ProcessingCredit Card Processing 
The merchant’s POS transmits the batch payment authorizations to a payment processor. The payment processor sends the batch authorizations to the card providers. The card provider then sends the key information to the issuing bank. For authorized payments, the issuing bank charges the cardholder’s account. The card provider will deduct any interchange fees and transfer the funds to the company’s bank.Once the company receives the money, the bank will transfer it to its business account. The issuing bank then updates the customer’s account statement, and the customer can check the transaction receipt. The merchant’s POS transmits the batch payment authorizations to a payment processor. The payment processor sends the batch authorizations to the card providers. The card provider then sends the key information to the issuing bank. For authorized payments, the issuing bank charges the cardholder’s account. The card provider will deduct any interchange fees and transfer the funds to the company’s bank. Once the company receives the money, the bank will transfer it to its business account. The issuing bank then updates the customer’s account statement, and the customer can check the transaction receipt. 

Conclusion

It is important to distinguish between a payment processor and a credit card processing. Although they might seem similar, they serve different purposes.

A payment processor is responsible for processing financial transactions between a company or customer. Payment processing is used to process credit card transactions even though the card is not physically present.

A Virtual POS can be obtained from your bank using a credit card. You can also choose an all-in-one payment gateway that provides payment-acquiring services.

So which processing method are you going to use? You now know the differences between these payment methods. Get our Free Trial Now to make the right decision for your company.