The means and instruments of making payments by a debtor to a creditor to enable the exchange of goods and services. A system for settling financial transaction processes through a monetary value transfer.
How a Payment Mechanism Works
A payment mechanism works in a relatively simple way. To trigger the payment process for your e-business, you need to open a merchant account. This is necessary for the system to accept both credit and debit cards. At this stage, the bank links your merchant account to the business bank account.
Whenever a customer pays using a credit card, a payment gateway processes the transaction. The system will then encrypt the information on the credit card before transmitting the same to the bank. After the bank accepts the transaction, it releases the money to your business bank account and- voila! The process is complete.
Many businesses execute payment mechanisms with the help of "a payer"- this is the person who makes the payment and ensures a debit (with details of the amount involved) passes to the banking partner. The term "payee" refers to the party that receives the payment by crediting their bank account with the cost. Further, a "payer's bank" is the bank that facilitates the payer's transaction. And the payee's bank is the institution that enables the payee to receive a payment to their bank account.
Example of a Payment Mechanism
Jake, a California resident, needed to buy a pair of shoes online from Amazon. To make the purchase, Jake needed to have a reliable payment system (to make the payment and await his order delivery). Jake decided to use a PayPal cash card (a payment mechanism) to purchase his shoes. A payment mechanism can make it easy for anyone to navigate online purchases successfully.
Many sellers of high-value web-services (like web design and consulting) prefer to use an escrow account when transacting with a client. A customer wouldn't want to pay thousands of dollars to purchase a website without a guarantee of the website's ownership transfer.
On the other hand, the website owner would not risk transferring the website and doing all the work without a payment guarantee. The owner will use the escrow service, which only releases the customer's funds simultaneously with the ownership transfer. This payment mechanism works much like a title company involved in a real estate transaction.
Significance of Payment Mechanism
As more people embrace online payments, there's a need to protect consumers from fraud. Many online payment systems involve collecting sensitive data. This presents fraudsters with a golden opportunity to steal personal information. The law requires payment mechanism software firms to have authority certification. Smart cards have, over the years, become popular; smart cards come with the enhanced ability to protect private information.
Integrated payment mechanism software secures user data, and the users benefit immensely. Most payment mechanism software (such as Venmo for business, Amazon pay, Stripe, and PayPal ) have made business transactions fast. Of course, every business needs to enhance its technological features to succeed.