The process of credit card processing is more complex than it may seem. To the cashier or customer, it may seem like the card is simply approved or denied, but there’s more complexity involved.

Having delved into the involved parties in processing a transaction, let’s proceed to examine the process and the functions of each party.

Who Participates in the Process?

Although processing a credit card happens rapidly, there are various participants involved in the procedure.

Your Business (Merchant).

The primary and most evident party engaged is your business. You provide a product or service to your customers and receive payment in return, making you a “merchant.”

Your Customer (The Cardholder).

The subsequent participant is your customer. They possess a credit card or debit card that they wish to utilize for the purchase. In this context, your customer is a “cardholder.”

Your Credit Card Processor (Payment Processor).

A credit card processor or payment processor is the entity that directs the transactions by enabling data transfer between you and your customer. They are the entity you enter into a contract with to establish processing fees and agreements.

Your Customer’s Bank (The Card Issuer).

Your customer’s credit or debit card is linked to a bank account, which could be a major bank like Wells Fargo, Bank of America, or a smaller institution like a credit union. The bank hosting the account is referred to as the “card issuer” because they issued the credit or debit card to your customer.

Your Bank (The Acquirer).

A bank holds your business bank account, which could be a major bank like Wells Fargo or a smaller institution like a credit union. The bank hosting your account is the “acquirer” or “acquiring bank.” An easy way to recall this is that it acquires the funds at the conclusion of the transaction.

Your Customer’s Card’s Brand (The Network/Association).

The network or association, also known as the card brand, represents the brand of your customer’s credit or debit card. Visa, MasterCard, Discover, or American Express typically sponsor your customer’s card.

Step 1: Customer Transaction Initiation The customer (the cardholder)

swipes/taps/inserts their card to initiate a transaction at the business (the merchant) and begins the credit card payment process.

Step 2: Merchant Information Acceptance

Subsequently, the merchant accepts and gathers the cardholder’s payment details in person, online, or via phone.

Step 3: Information Transmission

Following this, the merchant forwards the funds directly to the payment processor, either manually or automatically, using processing equipment such as an online payment gateway or a virtual terminal.

Step 4: Information Verification

The network transmits the transaction details to the customer’s bank (the issuer), which then verifies the bank’s records, confirms the provided information, and checks the cardholder’s account balance. Meanwhile, the processor conducts fraud checks and data security scans.

Step 5: Processor Notification

Upon verifying the information, the issuer notifies the processor, which sends an “approved” message if all is well. If there are discrepancies or insufficient funds, a “declined” message is dispatched.

Step 6: Batch Closure

To transfer funds from the customer’s bank to the merchant’s, the merchant must close the batch, either manually or automatically, within a specified timeframe, typically 24 hours.

Step 7: Fund Transfer

Once the batch is closed, the processor routes the funds over the network from the customer’s bank account to the merchant’s, completing the transaction.

The processor proceeds to transfer the funds across the network from the customer’s bank account (issuing bank) to the merchant’s (acquiring bank), thereby finalizing the transaction.

Service Charges

Your monthly statement from your processor typically includes these main categories:

• Transaction fees: These fees are associated with individual transactions and constitute the majority of your total fees. Examples include authorization fees or fixed percentage markup rates.

• Recurring fees: These fees aren’t linked to individual transactions and cover items like PCI compliance, account on file fees, statement fees, and batch fees.

• One-time fees: These fees, such as setup fees, early termination fees, and chargeback or retrieval fees, are triggered by specific or unusual events.

Pricing Structures

Payment processors employ various pricing models, resulting in varying costs (usually ranging from 2-4% on average). Factors influencing your pricing include your business model, industry risk level, credit card acceptance method, and more.

1. Interchange Plus / Percentage Markup
   This transparent pricing structure passes wholesale fees, including interchange rates and association fees, to you with a small fixed percentage markup over cost.

2. Flat Rate
   This straightforward pricing bundles all rates and fees into one predictable flat percentage each month, commonly used by Stripe, Square, and PayPal.

3. Tiered/(E)RR
   Similar to flat rate pricing but with multiple rates, transactions are grouped into tiers and charged accordingly.

4. Surcharge
   This structure passes transaction fees to your customers, applicable only to transactions incurring processing fees, saving you money.

Note :

Payment service providers like Stripe, Square, and PayPal offer flat-rate pricing, which may not be the most cost-effective option for most businesses. We analyze your processing history to ensure you’re on the most favorable pricing plan for your business.

Here are your options for processing credit card transactions: You must connect to your payment processor through relevant credit card readers.

Your choice of equipment will depend on a few factors:

• What your payment processor supports
• Your needs as a business (are you operating in person or online? Do you need to take your equipment to your customer, or do they come to a register? Do you have other needs like inventory management? etc.)
• The cost of the solution and future mobility (i.e., how much the solution will cost you in the long run)

POS Systems

Point of Sale software systems (POS solutions) are the gold standard in restaurants and retail locations. They handle credit card payment processing as a small part of their function. They can also help manage inventory and coordinate between the front and back of the house. Moreover, they are ideal for collecting customer information to retain them in the long run. POS systems come in various forms, so make sure to do your research before purchasing one. This will ensure it has all the necessary features to run and scale your business.

You need to run and scale your business.

Virtual Terminals

Virtual terminals are credit card payment processing software that runs entirely online. To access your transactions, you can log into a secure portal or an online payment interface from any internet-connected device. With a virtual terminal, you can process single transactions, as well as recurring transactions, directly through your portal. You will be responsible for entering the card data, and this method is most commonly used by mail-order and telephone-order (MOTO) businesses.

Payment Gateway

Virtual terminals and payment gateways often differ from virtual terminals because they’re used interchangeably, but there are many critical differences between them.

A payment gateway provider such as Authorize.net attaches the technology that captures and sends encrypted transaction data from the customer to the acquirer to an online checkout page on a website. It verifies that the payment is not fraudulent and can even handle recurring billing, chargeback reduction, and PCI compliance.

Mobile/Wireless Terminals

Mobile or wireless terminals have become increasingly popular in retail environments due to their ease of use and portability. Mobile often refers to the app-based process where your smartphone acts as the terminal. To access it, log into your account from your device within the app. This connects you to your processor to process transactions. You have two options for these transactions: manually key them into the app or swipe/tap/dip them through the physical hardware attached to your smartphone.

A wireless terminal is similar to a countertop terminal (the traditional machine you’ll still see on countertops), but it is wireless and doesn’t require cords. Wireless terminals operate via a rechargeable battery, making charging easy. Additionally, they can connect to the Internet through either WiFi or a 3G/4G subscription to process transactions, just like a traditional countertop terminal.

EMV

EMV is a credit or debit card with an embedded security chip. This technology replaced the magnetic stripe on the back of cards as a more secure alternative. EMV technology is designed to make card transactions more secure. It does this by encrypting customers’ card information so that it is not stored directly on your device. To ensure the safety of credit card information, it is essential to follow best practices when storing it. An EMV terminal is a traditional countertop device or credit card machine that can process payments using the chip.

Online Shopping Carts

If you have or plan to start an eCommerce business, you’ll need an online shopping cart to make it run. An online shopping cart utilizes a virtual terminal on the backend to create a front-end store your customers can use to buy items. Because of this, it allows your customers to make purchases without your direct involvement.

Apply for Credit Card Processing

Apply now for a merchant account and start processing credit cards as soon as tomorrow.

You must understand how to receive credit card payments for your business. However, don’t forget that selecting the right credit card processing company is one of the most critical decisions you’ll make when expanding your business. While cost is a significant factor, choosing a credit card processing company that fits your business needs and is compatible with your equipment is equally vital. Above all, prioritize the security of your business transactions and ensure you can quickly reach out to customer support when facing an issue.

Merchant Services

Your credit card processor is your merchant services provider, offering various financial services for businesses. Credit card processing is the most common service. Still, depending on your business, you may also have access to ACH transactions, electronic checks, physical check processing, gift card programs, loyalty programs, and more.

Additional Services

Credit card processors offer merchant services and additional services to their clients, such as merchant cash advances or loans, payroll management, inventory management, accounting and invoicing services, customer loyalty programs, fraud prevention tools, and integrations.

Integrations

Payment processors offer integrations with other service providers for comprehensive solutions. Inquire about relevant integrations if your processor doesn’t provide a needed service.

PCI Compliance

PCI Compliance, or PCI DSS compliance, requires businesses that process credit card payments to adhere to a set of security standards established by the PCI Security Standards Council. This initiative aims to minimize fraud and associated expenses for businesses that accept credit cards. Failure to comply with these standards may result in significant costs, which makes it a crucial consideration. To ensure compliance with these standards, choosing a credit card payment processor that complies with them and can assist you in obtaining certification is essential.

Fraud and Risk Protection

Accepting credit cards carries certain risks, including fraudulent transactions and chargebacks. Having a merchant service provider that prioritizes your best interests can help mitigate these risks and ultimately save you both time and money in the long run regarding credit card processing.

Responsive Customer Support

Ensuring your payment processor provides responsive customer support when needed can make a significant difference during unexpected issues.

Your business must understand credit card processing companies. After reviewing this detailed guide, you will feel more confident selecting the ideal partner for your credit card payment processing needs. Please get in touch with our team to learn more about how we can serve as the right solution for your business.