Understanding how electronic payment systems work can get technical since there are a lot of moving parts. Here’s a breakdown of the main participants required for an electronic payment transaction:
The cardholder is identified as the consumer who purchases a product or service online.
The merchant is the person or business that sells goods and services to the cardholder.
The issuer is the financial institution that provides the cardholder with the payment card. This is usually the cardholder’s bank.
The acquirer, or merchant account provider, is the financial institution that establishes an account with the merchant. The acquirer authorises the legitimacy of the cardholder account.
The payments processor handles the official transaction between the cardholder and merchant.
The payment gateway processes merchant payment messages and uses security protocols and encryptions to ensure transaction safety. You don’t need a payment gateway with Square because our hardware and services create an end-to-end payment processing system.
Electronic payment transactions are divided into two types: one-time vendor payments and recurring customer vendor payments.
One-time vendor payments are commonly used on eCommerce payment systems. A cardholder types in the card or banking information on a checkout page and simply clicks to purchase.
Recurring customer vendor payments are used when the cardholder is paying for a product or service regularly. Customers enter their information once and then opt in for a recurring billing option with a set date for the payment to go through. This is often used by car insurance agencies, phone companies, and other types of businesses.