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Online Payment System

Advantages of choosing a payment processing system over a payment gateway

To carry out an online transaction using a credit card, the first thing a website requires is a payment gateway, a payment gateway is essentially a replacement for a POS (point of sale) terminal. Instead of physically swiping the card, a customer enters the details into a website, and the details are then passed on to the payment gateway that then returns a code to let the website know if the transaction has been authorized or not. In fact if required even a POS terminal can also be linked up to a payment gateway.

The fact to be noted here is that instead of physically swiping a card, the card details have been entered by a person, who claims to be the owner or authorized signatory of the credit card, there is no way for the website to really know if the person using the card is actually the owner of the card, there is no way to match the signatures, and neither is there an option to view the photo id of the individual to compare it with the photo on the credit card. In essence the online website assumes that the credit card is not being misused. In a perfect world there would be no problem with the system, however the truth is that millions of dollars of fraudulent online transactions are carried out each year.

Today it has become essential for an online business to find more effective ways to combat credit card fraud, and charge backs. Payment gateways do not have any inbuilt mechanism for fraud detection, this is where payment processing systems step in, specialized payment processing systems are designed to not only process a transaction, but to also calculate the probability of a transaction being paid at a later time. Agreed there is no substitute for matching a signature or verifying the photograph on a credit card, however payment processing systems have fast become a great tool for fraud detection.

How a payment processing system works varies from company to company, but the core principle is the same, payment processing systems have access to the past transaction history of the credit card holder, and they also use information like the country of issue to make up a composite of the credit card holder. Each parameter (there are hundreds) is then assigned a certain weightage, the payment processing system then works out the probability of the transaction being paid, or resulting in chargeback. For example, if a person has a repeat history of chargeback then the payment processing system will duly note this, and the chances that the payment processing system will approve the transaction are much lower.

Apart from fraud protection, payment processing systems have various merchant tools that allow an online business to manage its transactions in an effective manner. The advantages of using a specialized payment processing system are vast, and depending on the nature of one’s business, an online business should consider hiring a payment processing firm instead of going for just a regular payment gateway.

Article Source: http://www.topicinfo.com

Jim Duncan is the author of this article on payment system. Find more information about internet payment systems here.

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