Processing account: what is it and how does it work?

The rapid growth in the development of financial technologies has brought new revolutionary payment methods not only in the field of online commerce but also given impetus to the development of the entire banking sector. Considering the rapid growth of Internet business in many areas, the world is faced with a new challenge – the need to make electronic payments safely and as quickly as possible, which would expand the opportunities of entrepreneurs not only within the borders of their home country but also take their business to the international level. The response to this challenge was the invention and widespread use of processing accounts, now an essential element in the functioning of any business.

To understand what a processing account is and how it functions, it is advisable to look at the internal mechanism of its operation. But first, let’s pay attention to terminology.

What is payment processing?

Payment processing, or a merchant account, is a unique trading account that allows you to process online payments using payment systems that come through online banking or customers’ current accounts. Payments can be received around the clock from different parts of the world.

Simply put, a processing account helps the buyer transfer electronic money to the seller.

Every day, we come across the operation of this account: when we pay for a purchase in a store through a terminal or when, for example, we make an online payment.

Who needs a processing account?

The demand for a processing account primarily depends on the business and the goals pursued by the entrepreneur, and above all, it is necessary for such areas of business as online stores, online trading, and supply of various services, especially for companies related to tourism and hotels; freelancers; IT and others.

Thus, today, processing accounts play an essential role in the development and expansion of business, making them a necessary tool for efficient and convenient management of financial transactions.

Who is involved in payment processing?

Payment processing involves several vital participants, each of whom performs specific functions to ensure the successful completion of the transaction:

1. Payer – any person – individual or legal entity who makes payment for goods and services.
2. Seller or payee – any person who accepts payment is the final recipient.
3. Issuing bank or payer bank – the bank in which the payer has an account and initiates payment from this account. The specified bank provides security and confirmation of funds for making a payment.
4. Acquiring bank or seller’s bank – the bank in which the seller has an account and processes the buyer’s payments.
5. Payment processor – deals with processing financial transactions. This is, in essence, a service that acts as an intermediary between the client using a bank plastic card, the seller (merchant), the card issuer, the acquirer, and the payment gateway.
6. A payment gateway is an intermediate link that provides communication between an online store (or other payment systems) and banks. The payment gateway processes transaction requests, verifies data, provides security, and forwards payment information to banks.
7. Payment systems – VISA or Mastercard are mainly used within Ukraine. For Western countries, the more common payment system is American Express. These payment systems act as a link between the processing center and the issuing bank.

Processing stages

• Initiation of electronic payment. At this stage, the client enters his own card details (number, expiration date, and CVV code) to make the payment.
• Next, information about the transaction initiation is transmitted to the payment gateway or processor. The payment gateway/processing platform authenticates the client.
• Request for authorization to the acquiring bank; the bank, in turn, communicates with the client’s payment system.
• Request for authorization to the issuing bank. The bank checks whether sufficient funds are in the account and agrees/refuses to do the transaction. After successful authorization, the transaction goes through the processing stage, where the payment processor performs the necessary calculations and records the balance change.
• Through the acquiring bank, the information enters the processing center. The transaction is completed if everything is in order, and the funds are transferred to the seller’s bank account.

All stages of processing and acquiring usually take a few seconds.

Opening a processing account

First of all, to be able to open such an account, you need to take into account several important points:

• The initiator of opening an account must be an officially registered entrepreneur, not just an individual.
• The scope of business must correspond to that indicated in the application form for opening an account and legal documents, such as an extract, charter, etc.
• The business must have an active web page or application that typically opens without errors and functions.
• The active web page must contain a detailed description and characteristics of the product or service being sold. Particular attention should be paid to posting information about delivery, the possibility of returning goods, and up-to-date contact information.
• Have an already active current account to which the processing account will be attached. By itself, it does not function.

Types of processing account

It is essential to understand the specifics of the business to determine which account to open correctly. There are two types of such accounts:

• Merchant – which opens for making payments through POS terminals with bank cards; it is also called “bank processing.”
• Internet – suitable for making payments to businesses that engage in e-commerce, otherwise known as “card processing.”

The importance of passing compliance

When opening any account, whether a processing account or a regular settlement account, you will have to face a compliance procedure, which is decisive when deciding to open an account for processing bank cards.

The applicant will be asked to provide all documents that relate to the owner, director, secretary, and account manager. They will also be asked to disclose information regarding the activities carried out and provide legal documents and documents that confirm relations with counterparties (contracts, invoices, and applications).

This procedure aims to verify the legitimacy of the business and establish its transparency.

This procedure may initially seem simple, but it has its own characteristics and pitfalls. Ignorance of the intricacies of the compliance procedure can lead to refusal to open an account, and the price for this will be wasted time, effort, and money. In this case, we recommend that you seek help from our lawyers, who have significant experience in opening merchant accounts abroad and will help you pass this check quickly and without problems.

To summarize the above, we can conclude that opening a processing account in modern reality is an important step necessary to expand business opportunities and the geography of its activities. Electronic payment processing provides businesses with efficient mechanisms for processing electronic payments, increasing their competitiveness and readiness to operate in the modern market.