A Quick Guide to Credit Card Processing

Florence Carpenter

What are credit card processors and what do they have to do with credit cards? At the end of this article, we hope you’ll have a better understanding of the processes behind credit card transactions.

These days, almost anyone has access to a credit card. Your bank has probably offered you a few chances already. For business owners, they’re a convenient way to sell products and items. 

That’s because most people choose to “swipe” their purchase instead of using cash. They’ve become such a ubiquitous item that most people don’t really know what’s going on behind the scenes.

What’s involved in a credit card transaction?

The thing is, it’s not as straightforward as telling your bank that you purchased an item. For the most part, there are 4 entities involved with your credit transaction:

  • The bank that issued the card to the customer.
  • The business 
  • Credit card processors
  • Credit card brand

There’s that term again, “credit card processors”. We’ll get into the details in a bit — but for basics, they’re the people connecting the business to the bank. They play one of the most vital roles in the process.

Despite the simplicity of our card transactions, there are more people involved than we’d have thought. It is important that businesses aiming to adopt credit card purchases be familiar with all this. 

Credit Card Processing

So what do credit card processors do? Like we mentioned before, they bridge the gaps between the customer’s bank and the business. The role they play covers a few different components of the transaction.

Card Transaction Tools

They do this by providing the software and hardware necessary to make card transactions possible. The kind of software involved depends on your business. Recently, companies have gotten pretty creative with how they approach this. 

Ever notice how some businesses use iPads as their point-of-sale (POS) system?  Some credit card processors use these devices to run the software in charge of recording the card transaction — which leads us to the hardware component. 

It’s not like you can walk to the nearest electronics store and grab yourself a card reader. Credit card processors will also provide the hardware necessary to conduct the purchase. 

This gives card processors and the business the assurance that they need. Professional companies offering credit card processing prioritize the security of their transactions. 

This way, they can pride themselves in quality service. Which brings us to our next point.

Transaction Security

Behind-the-scenes, credit card processors need to fulfill certain requirements to be able to call themselves as such. To ensure a safe environment for card users, the Payment Card Industry (PCI) has its own compliance requirements.

The short version of these guidelines go along something like this:

  • Cardholder data protection
  • Implementation of strong access control measures
  • Regular monitoring and testing of networks
  • Follow a strict information security policy 

For businesses looking for a credit card processor, you’ll want to make sure that they are PCI compliant. Additionally, they’ll want to make sure that they’re following guidelines as well as this could result in legal damages. 

Payment of Fees

Credit card fees have been a notorious part of the process. What a lot of people don’t understand are the reasons why these fees matter so much and why they keep on changing.

When customers swipe their card, the credit card processing company will take note of the necessary details. Store location, type of transaction, and type of product will be noted as part of the computation.

Generally, you can expect three types of fees with your card transaction.

Bank Interchange Fees

Banks that issued the card to the customer have a certain way of determining the fee to be paid. The fee is a flat rate added to a percentage of the transaction total. Unfortunately, the card processing company will not be able to haggle on your behalf. 

This rides on a few different factors. Some factors that affect the interchange fees:

  • Type of card
  • Category of the issued card
  • Method of processing

These factors compose the bottom line interchange fee that the business then pays the issuing bank. Banks don’t determine these fees individually though. Normally banks discuss this with other issuing banks and the card brands. 

Card Brand Assessment Fees

Another fee to consider would be the card brand’s assessment fees. Again, these are fees that the credit card processing company cannot discuss. Discover, Visa, and Mastercard all have different rates for this.

Each fee comprises a transaction fee, brand fee, plus a flat charge. The different credit card brands will have different ways of charging though. 

For example, Mastercard charges a Merchant Location Fee per year. This means that businesses that allow Mastercard will have to pay a yearly fee of $15 at the highest. 

Mostly these brands will have very similar fees. You can easily find a consolidated record of the fees over the internet. 

Credit Card Processor Fees

Lastly, the credit card processors themselves. This is the one item in this section that allows businesses to discuss the fees. Credit card processors prove their worth one more time with this item. 

That’s because they’ll be the ones in charge of collecting all the required fees for each transaction. Imagine having to do all that by yourself!

Given their access to the transaction data, the company you choose will record all the necessary information and distribute the accumulated fees to the necessary parties.

But how do they make money, you ask? By adding another percentage. This time, there isn’t some form of an industry standard for these fees. Each credit card processor will have its own way of computing for fees. 

These fees could be paid monthly, annually, per transaction, or a combination of these. At this point, it really depends on the card processor you choose for your business.

Considering the amount of work they’re putting in, it’d be fair to say that this fee is at least the most immediately appreciated. 

Are you a new business owner and have any more questions about this process? Comment below!

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