Payment Processors 101
This is a brief overview on what payment processors are and which ones are available in LMS; here, we'll explain the payment process and how processing companies play a role in making transactions. Each payment processor works a little differently, but they have the same purpose: to make it easy to move funds between accounts.
What are Payment Processors?
If you've never worked with a payment processing company, you may not be aware of what they are and what they do. Whenever a customer makes a purchase with a card or an e-check, a processing company is involved. The processor connects with the banks where the customer and merchant have their accounts, and then handle the actual transfer of funds out of one account and into another.
Payment processors in LMS work the same way: When a borrower makes a payment, it's the processing company who actually works with the banking network to get money from the borrower to the lender. We're integrated with several processors, giving you a wide range of options in function, availability, and pricing. There isn't one processor that does it all—most are limited in the type of payments they process, and none operate in both the US and Canada.
Using a processing company to make a payment can be complex, but here's a breakdown of the steps for making a transaction in LoanPro.
- The process begins with creating a payment profile. Payment profiles are saved in Secure Payments, but they can be created through the LMS UI via an iframe, which is essentially a bridge into Secure Payments. Regardless of where you input payment profile information, the profiles are saved in Secure Payments. When creating a payment profile, you will enter in your payment information such as bank accounts or bank cards. Your banking information will immediately be saved in Secure Payments, keeping your payment data encrypted and safe.
- Secure Payments tokenizes payment profile information and sends it back to LMS. LMS will store your token to be used for transact payments or manage the profile in the future.
- The next step is making a payment. From within LMS, you will select a payment profile from any of the customers associated with the loan.
- LMS allows you to choose a processing company when initiating a payment. You can set a specific payment processor to be your 'Default' processing company every time you make a payment, select a different processor manually each time, or set up automated rules that will determine which payments go to which processors.
- LoanPro has no part in the actual processing of the payment; it is in the hands of the processing company. Your token will be sent from Secure Payments to the processing company.
- The processor will evaluate your transaction and send a status response to LMS saying whether it was successful or failed.
What Processing Companies is LoanPro Integrated With?
LoanPro is integrated with different types of payment processing companies. When selecting which processor you'd like to use, it's essential to understand that they all differ in what they specialize in. These are the following things to look for when choosing a processor:
- The Cost – The cost of a processor varies depending on what processor you choose. Selecting NACHA is the cheapest route, but it is a complex method to use — you would have to be educated on how to use and format NACHA files.
- Setup – When you sign up for certain processors, they may need a merchant services provider. In most instances, the processor is its own services provider but there are times when you will need to select a merchant services provider. When you sign up with Authorize.net, you would need a merchant services provider (we recommend SelectBank Card).
- Approval – Oftentimes, small-dollar, high interest, and tribal lenders have a harder time getting approved by processing companies.
Here is a breakdown of the available processors:
Bank Card Processing
Canada EFT Processing
These are a list of terms that are used in payment processing.
These are a debit or credit card payments.
Automated Clearing House (ACH)
These are any e-check payments in the US banking system. Some processors will handle both bank card and ACH payments.
Electronic Fund Transfer (EFT)
These are e-checks in the Canadian banking system. All of our integrated EFT processors work exclusively in Canada. Additionally, because of the popularity of EFT payments, we haven't had many Canadian lenders show interest in a processor for Canadian bank cards.
PCI (Payment Card Industry Data Security) requires payment profile data to be entered directly into our compliant platform, Secure Payments. PCI has specific standards that help ensure the security of transactions; these standards are to protect card data when processing payments.
LMS is integrated with Secure Payments, another of LoanPro's software products. This is a service that provides PCI-compliant storage of payment data, integrations with several payment processing services, and uniform codes for failed or returned payments.
Tokens are encrypted codes in Secure Payments that allow you to identify and view a payment profile. The encrypting of the payment profile allows your payment information to be guarded inside of Secure Payments. These tokens are what make Secure Payments secure and PCI compliant. When a payment is made in LMS, Secure Payments already has the token of the payment profile. The token from Secure Payments is automatically saved in LMS which means that when you make a payment profile it will not require you to enter in a token. LMS stores the basic profile data and the token of the payment profile. The token allows you to distinguish payment profiles from one another and to reference the profile in the future.
iFrames are any window that takes you to another webpage. iFrames are what connect Secure Payments with LMS, allowing you to create a payment profile in LMS. To maintain PCI compliance, LMS uses iFrames to create customer payment profiles including the customers token and account type pulled from Secure Payments.
The Feature is Not
Let's take a minute to clear up any misunderstandings.
- LMS doesn't process payments. LMS and Secure Payments connect with one another, which means that when you create a payment profile in LMS it will immediately be stored in Secure Payments. LMS has no part in the actual processing of a payment; the processing company does the transaction and LMS posts whether the payment was successful or failed.
- Secure Payments isn't a payment processor. Secure Payments stores payment profiles, and communicates with integrated payment processors to get them to move funds between you and your borrowers. It acts as a safeguard for payment transactions, sending transactions to processing companies.
- The National Automated Clearing House Association (NACHA) and the Canadian Payments Association (CPA) are not processing companies like our other integrated partners. These organizations developed standardized files that customers use to send files to banks. Whereas our other partners deal with banks and card issuers on your behalf, NACHA and CPA-005 files let you handle your ACH/EFT transactions directly. This means more work on your end, but greater control over your process and a reduced cost for each transaction.
Now that you've got the basics of how payment processors are used in LoanPro, you may want to learn more complex concepts on this topic in Payment Processors – Next Steps.