Have you ever wondered what happens behind the scenes when you swipe your card in a shop or make an online purchase? Even a simple and small payment triggers a host of activity behind the scenes as the various cogs in the machine turn to offer an error-free and rapid transaction. Most of these cogs or participants in the payment processing cycle are obvious - the merchant, the customer, both their banks (merchant's acquiring bank and customer's card issuing bank), the payment gateway (which provides the front end to the user) and the credit card company. But in order to ensure that everything goes flawlessly, there in one more cog dedicated to one task and one task only - processing the transaction.

What is a Payment Processor?

A payment processor is a sort of behind the scenes player in the processing cycle. They do not usually directly interact with the customer, but rather through payment gateways and merchant account providers. Since their expertise lies in processing payments, they enter into partnerships with other players in the cycle and offer their processing services for a fee. The services might include checking transaction validity, running anti-fraud tests, and adhering to guidelines set out by the credit card company. For a physical store, it is usually the payment processor that provides the relevant card swiping hardware.

It is important to note at this point at the roles and responsibilities between these 6-7 players in the payment cycle differs based on jurisdiction, based on the particular card type, or even the merchant's setup. In many cases, the services may be bundled by a single company which provides comprehensive solutions.

Choosing the right payment processor

Here are a few key things to look out for when making a selection regarding the right payment processor for your business:

• Are there any hidden fees? What are the charges for cancellation, withdrawal, etc.? Is there a volume based discount? Can the merchant just pay a flat monthly fee which might be cheaper?How long does it take to process the transaction? How soon can funds be accessed by the merchant?

• How robust are the fraud detection mechanisms - is there real time address verification, multi factor authentication capability etc.? Does the company take responsibility for data protection as well?

• Does the merchant offer PCI compliance, which can lower the workload for the merchant?

• What methods are accepted? Can donations, debit cards, wallets, etc. be accepted easily?

• What are the support services on offer in case of an issue - chat support, 24x7 call support? A merchant may be able to significantly reduce customer queries and complaints regarding payment if the processor offers good customer service.

There were some predictions made a few years ago, which forecast that payment processing would get commoditized with little differentiation. However, innovative features are still being introduced by the market participants regularly and the technological race seems to be just heating up.