Nuts and Bolts of a payment startup
This weekend, after shuttling between Pawnee and Scranton, I was pretty interested in finding out about the machinations of the newest payment startups. To get to a point that I can even understand about the value proposition of these payment startups, I needed to learn the basics of payment startups. And across the web, after scouring the primers available, I found the following links. Here is a watered down version of the basics, I am sure it would be interesting to people learning about the basics of these startups.
Now I am Adam or Alex or Adnan or Amit or well, lets just call me A.
A wants to use his credit card to buy a new ergonomic keyboard. This Keyboard is listed on buycheapkeyboards. This keyboard is something that A has wanted for a long time but only now does his budget allow him to go get this. A whips out his credit card and orders the keyboard from the website. A fills out all the details like so
After filling out the details, A hits Ok and waits for a few seconds. Now what happens in those few seconds.
After the credit card details (Name, Expiration, Code) are entered, the details are sent to a Payment gateway. This payment gateway acts as an interface between the website and Merchant account bank. This payment gateway ensures that there is a secure way to get A's details over to the bank.
Then this payment gateway leads to a payment processor.
This payment processor is responsible for routing the payment request to a merchant account that will accept the payment on behalf of buycheapkeyboards. Since security of payments is complex and is potentially something that can put a business out of it, we need to decouple where the websites end and the banks begin. The merchant account is an account that each business (like buycheapkeyboards) must have to accept payments.
Lets take a breath now, a few more terms are going to be throw at you.
Now the merchant account needs to check with the issuing account. The payment processor ensures that this 2-way communication happens. The issuing account is the bank account that A has. These 2 talk to each other and get approval for the payment. Then, if the funds are enough in A's account i.e. the issuing bank account has enough funds to transfer the payment, then the merchant account gets the money. The merchant account is also called a merchant acquirer. The issuing bank is also called a card issuer.
In a nutshell, thats about it.
Now there are issues with fraud and chargeback. For chargeback, consult this helpful info-graphic from
Chargify
Credits:
http://www.quora.com/How-does-credit-card-processing-work
http://www.quora.com/Online-and-Mobile-Payments/What-are-some-innovations-introduced-by-recent-startups-in-online-mobile-payments
http://www.quora.com/Online-and-Mobile-Payment-Startups
http://allthingsd.com/20130117/is-there-a-big-win-for-the-payment-startups/
http://shopsite.com/cc_101_detail.html [Just replace Shopsite with your own payment startup]
http://www.wufoo.com/images/powered/paymentform.png
http://chargify.com/images/uploads/chargebacks-v3.jpg
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