Home » The complex work of a global payment service work explained in a simple way
A global payment service is a process with multiple basic participants, which is a tremendously complex, highly standardized, and demanding service to run things correctly. We’re explaining in this article how it works so everyone can understand it.
When a business grows to a point of the need to accept payments not just in one country, it starts having the need to use a global payment service to process such payments. Unlike a similar processor within one country, the approach here is a little more complicated because it deals with different currencies, as well as with the banks, suppliers, vendors, and other parties located in a country, which is different from a country of the registration of a business. We’re telling in bigger detail, what is a global payment service and how it is organized.
a bank of a payer, which holds and transacts the payer’s money
a vendor of the goods or services, which is ought to receive the paid money
and the bank of the vendor.
These four parties may be registered in different locations (countries), which factually means different legislation, taxation, currency, operating time (business hours), client identification and KYC procedures, as well as anti-fraud policies. Global payment processors are here to make a payment process as smooth, swift, and error-free as possible. Along with that, modern-day payment processors provide additional services, including:
Anti-fraud policy implemented to avoid accepting payments from fraudsters (for instance, payments from bank cards, which are expired, counterfeit, have insufficient balance, etc.)
The provision of a connection to the payment gateway, which is a technical part of the payment process and required to send and receive transaction and client data in a secured manner to/from all parties so as to successfully execute the payment. Modern payment processors usually have their own payment gateways or use third-party ones
Keeping the transaction history so all parties can access it in the future for financial, accounting, tax, and legal issues
The provision of foreign currency exchange at a real and attractive for all parties rate at the moment of the execution of a transaction (when the currencies of an account of a payer, vendor, and corresponding banks differ).
The main idea behind the processing of payments around the globe is that everyone can pay with their card physically using it (in a store/ATM/POS) or by entering its requisites to pay online (on any website that accepts payments for anything it sells, would it be a small website or a large retailer).
The processing is not just about cards, though — today, people use a significant number of various payment channels, including e-wallets, e-money, bank debits, bank redirects, cash-based vouchers, and the ‘Buy now, Pay Later’ systems of all sorts. To successfully accept the transactions using all of them, payment processors resort to various technological solutions. So, today, there is no one-solution-fits-all and that’s why vendors and even banks resort to various companies, which are able to cover this or that channel.
How does global payment processing work: a process and prerequisites
Running a payment business is a sophisticated issue. That’s why little to no businesses develop their own processing centers but rather rely on specialized companies that exist in the market today, such as Klarna, Stripe, Payoneer, Tipalti, or a multitude of others. Only some large banks are able to develop and run their own processing system.
So, here are the basics of what processing shall have to work.
Payment processing software development and certification. That is the hardest part. The software that will process the payments must be designed and developed by a payment processing company. Then, it shall meet stringent criteria corresponding to the type of the channel of payments that it will serve. For bank cards, it must be PCI DSS compliant (and the PCI DSS requirements are several hundred pages of technical and technological requirements and particularities, concerning the data formats, protection, anti-fraud, secure transfer protocols, and lots of other ‘boring’ yet super important stuff, which financial regulators demand).
Open a merchant account. Every payment processor that wishes to operate in some market, shall open a merchant account in a bank of that country and have a company established there working according to the local regulations.
After that is done, the processor is ready to begin the payment processing. A process looks in general as such:
A client enters their payment data on some website and, along with other transaction details, they are sent to a payment processor through a payment gateway
The processor asks the bank or another system of a payer about the validation of the transaction (amount, the validity of a payment means and client data, limits, etc.)
The system replies with Ok or Not Ok and, if Ok, writes off the money to send it to a payment processor
A processor sends the money to the vendor’s account or sends the denial info if Not Ok.
The vendor’s account is replenished and it sells an item or service to a client. Otherwise, sends the denial.
Now you know, without unnecessary technical and technological complications, how does global payment processing work and can tell it to other people to maintain an interesting yet deep conversation.