In this modern world, credit card payments will become increasingly important to most merchants. With everything that’s going on around the world, including the COVID-19 pandemic, merchants should be prepared to accept credit cards as their primary payment options today and in the coming years. This is where the concept of credit card processing service comes into play.
Primarily, credit card processing is a complex type of service that involves several players, technologies, payment networks, financial institutions, and regulatory bodies. However, credit card processing can be a confusing and overwhelming process for both merchants and customers. Hence, if you’re a business owner who intends to use credit card payments, it’s important to gain a better understanding of how this concept can work best for you and your customers.
Here are the three things you need to know about credit card processing.
1. There Are Several Parties Involved In The Authorization And Settlement Of Credit Card Payments
When it comes to credit card processing, it’s crucial that you get familiar with the different key players involved in the process. The following are the parties who have active participation in the authorization and settlement of credit card payments:
- Merchant: A merchant refers to a business with a merchant account that allows them to accept credit or debit cards as payments by the customers for the purchase of goods or services.
- Cardholder: By definition, a cardholder is anyone who has a credit or debit card from a card issuing bank. The card is presented to the merchant to pay for the purchased goods or services. They’re also expected to use the credit cards wisely for their protection against credit card fraud and other criminal schemes.
- Merchant’s Bank: They’re also known as an acquiring bank that makes a deal with merchants to have and maintain merchant accounts so they’re allowed to use credit or debit cards as a mode of payment.
- Issuing Bank: Also known as a cardholder bank, they’re the one who issues credit or debit cards to the customers who use the same to purchase goods or services.
- Payment Processor: Also known as the credit card processing company, they’re in charge of the processing of purchases via credit or debit card payments.
- Card Associations (Visa And Mastercard): They’re not banks but they function as the governing body of a community of financial institutions that work together to support credit card processing.
2. There Are Different Types Of Fees Involved In Credit Card Processing
Another important thing that you should know about credit card processing is the fees involved in the process. Generally, these fees may vary based on several factors and circumstances. But if you’re looking to save money on your card processing fees, a price comparison site, like Cardswitcher, can help you find the best deals.
Furthermore, below are the common types of fees involved in credit card processing that you should consider from the get-go:
- Transaction fees: These are the fees associated with the transactions you make with the customers. These are mandatory fees since they’re set by the credit card companies that you have to pay. One of the common types of transaction fees is the interchange. Generally, interchange rates can be either cheap or expensive depending on the type of card you’re accepting. When it’s expensive for the credit card company to maintain the card, you expect to pay an expensive interchange fee. However, there are some cash discount programs which you can use to decrease or completely eliminate the processing fees on credit card transactions. Make sure you Learn More about the program before enrolling in it.
- Recurring fees: These fees can be found on your monthly statements but they’re not really required for you to accommodate credit card payments from the customers. These can include statement fees, monthly minimum fees, annual fees, batch fees, and many more.
- One-off Fees: These are fees that occur once in your statements, such as PCI (Payment Card Industry) compliance fees, terminal fees, chargeback and retrieval fees, payment gateway fees, and many others.
3. The Credit Card Processing Service Involves A Step-By-Step Payment Process
Now that you’re aware of the different key players in the credit card processing as well as the fees involved, it’s time to learn about the actual payment process. Typically, the credit card processing services observe the following steps in the payment process:
- The customer or the cardholder purchases an item using a credit card.
- The credit card will be swiped using a processing terminal wherein the card will be recognized for the proper charging of the purchase. The processing terminal will contact the payment processor for authorization.
- Once the payment is authorized, the payment processor or the credit card processing company will send the payment to the merchant’s bank using a certified merchant services provider.
- The merchant bank will deposit the payment into the merchant’s bank account to complete the process.
- Every last week of the month, a statement will be sent to the merchant about the details on the interchange fees set by the issuing banks or credit card companies.
The whole credit card processing service can be a complicated undertaking. With several key players involved as well as fees that should be paid, merchants should carefully plan the idea of accepting credit or debit cards as payment or becoming a certified credit card merchant.
Therefore, if you want to take advantage of credit card payments to boost your business sales, keep these things in mind so you’ll know what to expect about credit card processing.