In the high-speed digital economy of today, payment networks are the behind-the-scenes facilities that make the flow of money from buyers to sellers possible. Every time you swipe your debit card, credit card, or even an app to purchase something, a payment processing network springs to life in the background to make the payment .It’s important that every businessperson, finance professional, and anyone who wants to know where their money is going today knows how payment processors, payment networks, and payment provider systems work.
What Are Payment Network?
Let’s start with the basics: What are payments? Payments are the transfer of value or money from one party to another, usually as payment for an obligation such as a bill or goods and services. Payments can be made in a variety of ways:
- Cash transactions
- Bank transfers
- Debit card processing
- Credit payment processing
- Mobile wallet transactions
- Cryptocurrency payments
With business growth, payment methods also grew. The marketplace of today is ruled by most payments being a form of payment services online connected through a network of payments.
What Is Payment Services?
Others wonder, What is payment services? Simply put, payment services are the infrastructure, process, and technology allowing consumer and merchant to make an online transaction.
These types of payment services may be:
- Online checkout websites to make payments online
- Point-of-sale (POS) systems implemented in brick-and-mortar stores
- Payment network services securely forwarding transaction data
- Subscription recurring bill systems
- Mobile payment programs
These payments can be made by a company or business known as a payments provider or payment provider. These connect the merchants to payment card processors and payment networks and enable smooth payments.
The Payment Network Role
A payment network is the road system for electronic money. Your bank and the merchant bank communicate when you swipe a card to buy something and the paymentervicenetwork acts as a conduit between them, and the money gets transferred safely and easily.
Think of this:
- Payment processors are toll booths that accept and settle cars (transactions).
- The payment network is the road upon which they get delivered.
- Payment processor companies are those that own or rent the toll booths and make sure that all functions properly.
- Without a payment network system, your credit card would be nothing more than a piece of plastic.
How a Payment Processing Network Works?
The following is day-to-day what happens during credit payment processing or debit card processing:
Step 1 – Initiation
A consumer shows a payment device it can be a credit card, debit card, or mobile wallet. The merchant point-of-sale (POS) system reads the transaction information.
Step 2 – Transmission
The payments processor was sent the transaction information from the merchant’s system.
Step 3 – Routing
The payment network routes the information to the proper card networks (such as Visa or Mastercard) or to a closed-loop network (such as American Express).
Step 4 – Authorization
Customer bank checks:
- Whether there are enough funds available (for debit)
- Whether there are enough available credit balances (for credit cards)
- Whether the purchase is in security and fraud rules
Step 5 – Response
The bank sends an approval or rejection message via the same payment network facilities.
Step 6 – Settlement
The funds are settled from customer to merchant account, typically 1–3 business days from authorization.
Debit Card Processing vs. Credit Payment Processing
Both debit card processing and credit payment processing utilize a payment processing network but slightly differently:
Debit Card Processing – The money is actually deducted directly from your bank account at the time of purchase.
Credit Payment Processing – money is borrowed from a line of credit, and the customer pays back later (typically monthly).
Both employ payment card processors and payment network services to offer security and precision.
Types of Payment Networks
Not all payment networks are equal. They usually fall into two broad categories:
- Open Payment Networks
Large integrated systems in which a number of banks, merchants, and pay providers can become affiliated.
Examples: Visa, Mastercard, UnionPay.
Pros
- Accepted everywhere
- Supports all types of payment services
- Competitive processing charges
Cons:
- May involve multiple intermediaries, thus, settlement takes slightly longer
- Closed Payment Networks
Which is owned by one company that issues cards and accepts payments themselves.
Examples: American Express, Discover.
Pros
- Direct access by cardholders
- Generally has unique rewards
Drawbacks:
- Less accepted in certain places
Advantages of Payment Network Services
Having an excellent paymentservicenetwork offers massive advantages:
- Security
Sophisticated encryption and anti-fraud capabilities that protect customers and merchants.
- Speed
Transactions settle in seconds, even between banks.
- Reliability
The payment networks that do exist provide practically 100% uptime, meaning businesses never miss a sale.
- Global Reach
Open card networks allow businesses to accept payments from customers all over the world.
- Multiple Options to Pay
From credit card processing to debit card processing, there are numerous ways for customers to pay in the manner they choose.
Payment Card Processors and Providers
The payment card processor is the technical intermediary who facilitates the transfer of payment information between the customer, merchant, the payment network, and the customer’s bank.
An payments provider or payment provider offers merchants an integrated bundle fraud protection, integration into the payment networks, and reporting features.
For example:
- PayPal is a payments provider who works with multiple payment networks.
- Stripe is a payment provider who integrates directly into shopping carts.
Network Payment vs. Payment Processing
Beware not to confuse network payment systems with payments processing in general.
- Network Payment particularly refers to the system that transmits transactions from bank to bank.
- Payment Processing covers the entire process, from receiving payment data right the way through to settlement.
In a nutshell: network payment is just one aspect of the payment services universe.
Examples of Payment Networks in the Real World
Some examples of payment networks that are used:
Visa – An open world network with partnerships with thousands of banks globally.
Mastercard – Similarly, renowned for payment network service innovation.
American Express – Closed-loop network in which Amex plays issuer and processor roles.
Discover – Other closed network, highly popular in the United States.
UnionPay – China’s enormous payment processing network, now expanding globally.
Payment Services in the Digital Age
Payments today are smarter than ever before, with rich capabilities available to support customers online and offline.
Capabilities already in place are:
- Contactless tap-to-pay transactions
- Subscription billing with periodical payment of services
- Peer-to-peer mobile app transfers
- Cryptocurrency payment gateways facilitated by payment networks
Choosing the Right Payment Provider
Choosing a payment provider means that businesses have to consider:
Cost Model – Observe the credit payment processing charge and debit card payment processing charge.
Security Features – Observe PCI DSS compliance and fraud protection.
Integration Options – Be compatible with your existing sales platforms.
Customer Support – Choose a provider with responsive technical support.
Global Capabilities – For cross-border transactions, make sure your payment processor has support for multiple card networks.
The Future of Payment Networks
New directions will reshape the payment processing network environment:
- Instant payment settlement through blockchain technology
- AI-based anti-fraud solutions
- Central bank digital currencies integrated into payment networks
- Open banking APIs enabling payment processors to more easily connect with financial institutions
Conclusion
A payment network is the backbone of contemporary commerce, bridging payment card processors, payment providers, and payments processors for simple facilitation of transactions quickly, securely, and reliably. Through credit payment processing, debit card processing, or mobile applications, the paymentservicenetwork sends your money from Point A to Point B in a matter of seconds.
By understanding what payment services are and what payment networks do, businesses are able to make informed decisions on which payments provider to use and how to optimize their payment services for customer satisfaction and profitability.
FAQs
What is a payment network?
A payment network is a network that links payments processors, banks, merchants, and consumers in order to facilitate money transfer securely in a transaction. It directs payment details among parties and ensures the funds to be approved and settled.
What are payments?
Payment is the transfer of money or value from one company or person to another for goods, services, or to settle a money obligation. They are processed in cash, bank transfer, credit card payment processing, debit card processing, or mobile wallets.
What is payment services?
Payment facilities are the platforms, infrastructure, and software used to support electronic payments. This can include payment network facilities, online gateways, POS terminals, and mobile payment applications offered by a payments provider or payment provider.
What is a payment processing network?
A payment network sends payment information from the merchant’s system to the customer’s bank and vice versa, employing card networks such as Visa or Mastercard. It entails authorization, authentication, clearing, and settlement — all done in seconds.
How does debit card processing differ from credit payment processing?
Debit card processing takes money right out of your bank account at the point of purchase.
Credit card payment processing incurs a loan against a line of credit which you repay later.
Both use a payment card processor and a payment network.
What are card networks?
Card networks are payment network businesses such as Visa, Mastercard, American Express, and Discover. They link payments processors, banks, and merchants to facilitate customers to make use of their cards anywhere the network is accepted.
Who is a payment provider?
A payment provider (or payments provider) is a company that offers merchants access to payment services, including payment network integration, fraud protection, and transaction reporting. PayPal, Stripe, and Square are examples.
What is a network payment?
A network payment is the infrastructure and system of communication that routes payment information between financial institutions and banks during a transaction. It’s the “highway” that carries payment information securely.
Why are payment network services important?
Payment network services make payments become speedy, secure, and reliable. They enable world commerce, reduce the danger of fraud, and support varied payment modes, from credit payment processing to debit card processing.
What is paymentservicenetwork?
Paymentservicenetwork is a term used to refer to the collaborative technology, institution, and system base supporting the movement of payments through customers to merchants to banks.