Payment Processing Basics: What You Need to Know

When you're ready to start processing payments for your business, there are a few basics you need to know. This guide will help you understand the different types of payment processors, how they work, and what fees they charge.
Types of Payment Processors
There are two main types of payment processors: third-party processors and merchant account providers.
 
Third-party processors are companies that handle credit card payments for businesses. They typically charge a flat fee per transaction, plus a small percentage of the total sale.
 
Merchant account providers are banks or other financial institutions that provide businesses with a merchant account. This is a special type of bank account that allows businesses to accept credit card payments. Merchant account providers typically charge a monthly fee, plus a per-transaction fee and a percentage of the total sale.
 
Which type of payment processor you use will depend on your business needs. If you process a lot of sales, you may save money by using a merchant account provider. If you process fewer sales, a third-party processor may be a better option.
How Payment Processors Work?
When a customer pays with a credit card, the payment is processed through the credit card network. The credit card network then sends the payment to the merchant's bank.
 
The merchant's bank deposits the funds into the merchant's account and deducts a fee for processing the payment. The fees vary depending on the type of card used and the merchant's agreement with their bank.
What Fees Payment Processors Charge?
Payment processors typically charge a per-transaction fee and a percentage of the total sale. The per-transaction fee is a flat fee that is charged each time a customer pays with a credit card. The percentage of the sale is a percentage of the total amount of the sale that is charged as a fee.
 
For example, if you process a $100 sale with a 3% fee, your total fees would be $3.00.
 
Some payment processors also charge monthly or annual fees. These fees are in addition to the per-transaction fee and the percentage of the sale.
 
Fees vary depending on the type of payment processor you use. Merchant account providers typically charge higher fees than third-party processors.
 
When you're shopping for a payment processor, be sure to compare the different types of fees that each one charges.
Now that you know the basics of payment processing, you're ready to start accepting credit card payments for your business. Just be sure to shop around and compare fees before you choose a payment processor.