All online businesses thrive on digital payments, such as credit and debit card payments, electronic wallet payments, and even cryptocurrency payments. However, no eCommerce business can accept these digital currencies without a payment processor and payment gateway.
Today, let’s take a close look at what a payment processor is, what it does, and how it works. We’ll also go over the types of currencies that payment processors accept and whether you can use a standard payment processor to accept crypto tokens at your eCommerce business.
Payment Processors Explained
Both retail and online businesses can’t accept electronic payments by magic. Instead, they rely on payment processing services, which manage all the backend logistics and technical support needed to accept credit cards and other digital payments.
In a nutshell, a payment processor takes the card or other digital payment data from a customer. Then it transfers that data to payment networks, including MasterCard, Visa, Discover, and American Express. They may also shuttle customer data to any banks involved in the transaction.
In essence, payment processors are middlemen who facilitate digital transactions between customers, companies, and banks or financial institutions. They play a vital role in accepting online payments of any type, so eCommerce businesses must have payment processing to accept payments from their customers at all.
Payment processors are available from various companies and often come with payment processing software or retail tools, like POS systems. Some electronic wallet platforms, such as PayPal, also offer payment processing.
The Payment Processing System
Still not sure how payment processing works or what it does? Let’s break down the payment processing system step-by-step:
- First, a customer provides a merchant with their credit card or other digital payment information, like the address for their crypto wallet. You can do this at a retail terminal like a POS device or an online store’s payment page.
- Next, the information provided by the customer goes into a payment gateway. Payment gateways are similar to payment processors, though they are different. A payment gateway encrypts key personal information from the card or crypto wallet and then sends the data to a payment processor.
- The steps are: Customer submits payment – payment goes to payment gateway – payment goes to a payment processor.
- Once a payment processor receives payment information, it initiates an electronic transaction and sends data through a card or crypto network like Visa or MasterCard.
- The financial institution overseeing the transaction either accepts or declines the payment request, checking whether the customer has the funds available to facilitate a purchase.
- The card network then informs the payment processor about the final decision, and the payment processor returns the information to the merchant, who completes the transaction with their customer.
- If the transaction completes, the payment processor also tells the bank that issued the card in question to send funds to the merchant bank. In other words, they instruct the bank to pay the merchant using the person’s account making the purchase.
- Finally, the merchant receives the funds from the sale. Depending on the payment processor used and other factors, they could receive payment immediately or over a few business days.
This process seems fairly complex, but it’s relatively straightforward. Payment processing happens in just a handful of seconds under most circumstances since the information exchanges occur at the speed of light and automatically. Living people don’t usually overview card accounts to see whether they have adequate funds; an algorithm or computer program does it instead.
How Companies Choose Payment Processors
There are lots of payment processors to choose from, meaning companies must be very discerning when selecting and subscribing to a payment processing service. Companies should consider the following factors when choosing a payment processor:
- Interchange fees make up most of the expenses incurred throughout a digital transaction. It costs money for payment processors and gateways to provide their services, so they take a cut out of every successful transaction processed at a merchant’s store. Before deciding, business owners should see what kinds of interchange and other fees come with a payment processing service. Some processing services are cheaper than others or may have discounts for specific businesses or purchases.
- There are three types of pricing overall: interchange-plus pricing, which includes the interchange rates and a defined markup fee as well, flat-rate pricing, which has a single rate for all transactions accepted in a particular way no matter the interchange rate, and tiered pricing, which combines some aspects from both flat rate and interchange plus pricing schemes.
- Whether a payment processor offers hardware, such as POS terminals or card swipe devices. This can be important if you run a retail and eCommerce store simultaneously rather than an online-only business.
- Whether the payment processor includes a payment gateway service as well. If not, you’ll have to get a payment gateway service from another provider or company.
- Does the payment processor also come with a merchant account? Most banks offer merchant account, but some payment processors also provide ready-made merchant accounts so that business owners can get up and running ASAP.
- What currencies are accepted by the payment processor. For example, if you want to accept Bitcoin at your eCommerce store, you’ll have to find a payment processor that accepts this cryptocurrency.
It’s a good idea to heavily compare all the payment processors available to you before making a final decision. Payment processing can significantly impact the profits you can expect from your cryptocurrency payments. Furthermore, some processors are better suited for your business model, your business size, and how many crypto tokens you expect to take in every quarter.
Of course, you can also choose a combined payment gateway and processing service like CoinPayments if you’d rather make accepting crypto tokens quick and easy!
Do Processors Work with All Currencies?
No. Payment processors only work with fiat currencies or cryptocurrencies, depending on what they are designed to do. The majority of fiat currency payment processors will accept common fiat currencies, like the US dollar, the euro, and so on.
If you wish to accept crypto payments at your online store, you’ll need a dedicated crypto payment processor and payment gateway system. Furthermore, you may also need to add crypto payment buttons or other functionalities to your eCommerce site.
That said, many payment processors and gateways are now moving to integrate with crypto and fiat currency payments. Cryptocurrency seems to be the way of the future, so businesses that want to be on the cutting edge of new economic developments should consider accepting crypto payments sooner rather than later.
Crypto Payment Processors
Crypto payment processors are, as their name suggests, payment processors that accept crypto coins like Bitcoin, Ethereum, Litecoin, and so on. Some payment processors may also accept fiat currencies, although these processors’ primary purpose is to get merchants into the crypto economy.
Crypto payment processors work in essentially the same way as standard processors, although there are a couple of differences:
- A customer and merchant both have digital wallets to hold cryptocurrencies
- The customer tries to purchase with cryptocurrencies, so a crypto payment gateway like CoinPayments encrypts their information and sets it up to be processed on that coin’s blockchain network. You must use a dedicated cryptocurrency processor to send the information to the blockchain in question.
- As soon as the transaction gets onto the transaction block, it moves across the Cryptocurrency network and is eventually verified.
- The merchant then receives cryptocurrencies from the customer – the information is once again encrypted before it reaches the merchant’s account to ensure top-tier security at every step of the process.
- Then the merchant can decide whether to keep the crypto funds or to exchange them for other tokens or a fiat currency if they are signed up for a crypto exchange
How CoinPayments Can Help with Crypto Processing
CoinPayments is an innovative and forward-thinking crypto payment gateway and processing service that can:
- Set up a crypto payment gateway and tools on your website with our merchant accounts
- Accept crypto payments for your online business
- Allow you to receive crypto tokens in a dedicated merchant wallet from CoinPayments
- Help you exchange your crypto tokens for other supported coins on our network
In short, CoinPayments is a one-stop shop for all your crypto payment processing needs. You can sign up for CoinPayments today or take a look at all the crypto tokens we accept and support. Modern eCommerce businesses will eventually need to accept cryptocurrencies, so why not get ahead of the curve and start receiving crypto tokens now with CoinPayments?