The Ultimate Guide to Processing Credit Card Payments

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    Due to the rising popularity of online shopping and the events of the global pandemic, increasing numbers of consumers prefer to pay with credit over cash. Because of this, successful business owners should look into the benefits of credit card processing as well as the most cost-effective payment processors for their brand. 

    What Are Direct Credit Card Processors? 

    Direct credit card processors work with major credit card companies to process payment transactions in-house

    When a customer makes a payment to a merchant, the online payment gateway records the card information, and the credit card processor transmits this data to the relevant credit card network (e.g., Visa or Mastercard) for approval. 

    The payment request is evaluated by the credit card issuer and is either approved or denied. If the transaction is approved, the card processor will ask the issuing bank to release the funds for the payment so that the merchant can have them. 

    Payment Processing Elements 

    There are several payment processing elements involved in every transaction: 

    • Payment gateways: Collects and transmits payment information between your online store and your payment processor
    • Payment processors: Obtains payment data from your payment gateway and verified whether the funds are present and deposits funds to your merchant account 
    • Merchant accounts: Where the funds are released to your business once payments are successfully processed, and transactions are approved 
    • Acquiring bank: Financial institution that is responsible for maintaining a merchant's account in order to accept credit cards, including services like authorization, dispute management, and clearing and settlement 

    Credit Card Fees 

    Credit card processing fees can vary significantly depending on the processor you choose, so it’s best to look at any service fees, interchange fees, and other monthly fees that you may have to pay in exchange for accepting payments. They are often determined by the volume of transactions you process, so some merchants may be able to get discounts. 

    Service Fees

    Payment processors charge a per-transaction fee and also charge additional service fees on a monthly or yearly basis. These service fees are usually a flat-rate number that is based on your volume of transactions, the payment gateway provider you use, and whether you are renting any hardware.

    Interchange Fees 

    Interchange fees are typically fixed and not open for negotiation, averaging around 2% of the total value of your transaction. However, high-risk industries may have higher interchange fees than the average. In addition, larger businesses can have access to lower interchange fees since they process higher sales volumes. 

    The Benefits of Accepting Credit Card Payments 

    Although small business owners may be hesitant to pay the fees associated with processing credit card payments, there are many perks of accepting online payment methods, such as increased sales and greater flexibility. 

    • Security: Credit card payments are generally more secure than other forms of payment, especially if you’re using PCI-compliant hardware and software. For instance, checks can easily bounce, and keeping large amounts of cash in your cash register may attract negative attention. 
    • Customer Adoption: Since credit cards are becoming more and more commonplace, customers are more likely to make an impulse purchase by swiping and tapping their card, especially if they aren’t carrying cash. Accepting card payments can therefore broaden your customer base. 
    • Global Sales: Although customers can use wire transfers and bank transfers, a credit card payment can be faster and easier if they purchase something online. Many card companies accept a variety of currencies and can convert funds to your local currency. 
    • Flexibility: If you’re selling high-value goods, processing credit card payments can make it easier for you to accept monthly installments that customers may not otherwise be able to afford. This can lead to increased sales down the line. 
    • Efficiency: Whether you’re accepting payments online or in-store, credit cards are one of the most speedy and efficient methods out there. There’s no need to calculate and distribute change, reducing room for error as well as long checkout lines. 

    Why Are Payment Processors Necessary to Online Transactions? 

    Payment processors are essential when it comes to ensuring the safety and reliability of online transactions. They are responsible for checking that the customer’s card data is accurate in order to prevent fraudulent transactions from taking place. Without payment processors, you will be unable to process payment information on your own. 

    Essentially, payment processors work together with the customer’s bank/credit card company and the business’s bank so that customers can buy your products or services. They also take care of accidental transactions but may charge a fee to reverse these payments. 

    How to Protect Your Business When Making Online Transactions 

    To keep your business safe with eCommerce credit card processing, you should consider several things during the selection process, such as choosing a payment processor with a good reputation. 

    • Reputable providers: Generally speaking, top providers such as Stripe, PayPal, and Square are popular due to their high quality of service. It is best to go with a well-reviewed option instead of choosing an unscrupulous provider that offers suspiciously cheap rates. 
    • PCI compliance: Abiding by PCI standards will help prevent the loss of private debit and credit card customer data. This includes the installation of firewalls, encryption of data transmissions for both merchants and payment providers. 
    • End-to-end encryption: To prevent unauthorized access to your data, encryption scrambles credit card information so that it can’t be read by unintended recipients, reducing the incidence of data theft. 

    Factors to Consider When Choosing Credit Card Payment Processors 

    To help you choose the best credit card processor for your business, it’s worth doing your research and comparing several options based on these factors: 

    • Fees: While some companies have transparent pricing structures, others may charge hidden fees in addition to typical interchange fees that can be easy to overlook, so it’s best to read carefully. 
    • Customer support: In case you run into any issues related to processing payments, it’s important to check whether the company offers 24/7 support or live chat options that can help. 
    • Fraud detection: To help you reduce chargeback rates and easily identify fraudulent transactions, some payment processors offer fraud detection as part of their services while others may not. 
    • Contract terms: Some payment processors may offer competitive rates but require yearly or monthly contracts, while others might be more flexible. Cancellation and pre-termination fees are also something you should research. 
    • Online reviews and ratings: Before choosing a processor, it is best to read plenty of online reviews and ratings on sites like the Better Business Bureau to get an accurate idea of what other companies and customers have to say. 

    Red Flags to Avoid When Choosing Credit Card Payment Processors 

    Once you’ve narrowed it down to several of your top options, these are some common warning signs to avoid in a card processor

    • Lack of transparent fees: If pricing information appears to be confusing or nonexistent on a payment processor’s site, it is a bad sign that they may be trying to add on fees that can inflate your costs. 
    • Contract length: A long contract may prevent you from making the switch to another processor, so it is best to inquire about any contract periods beforehand. 
    • Poor reviews: Plenty of negative customer reviews indicate that a company may not be the best fit for your brand. 
    • Equipment leases: More often than not, companies that lease equipment may be trying to trap you into a longer contract, and it is often a less cost-effective option to rent rather than buy outright. 

    How to Set Your Business Up To Process Credit Cards

    If you’ve decided to work with a payment processor, the first step is to set up your merchant account and a payment gateway. Depending on the size of your business, type of industry, and estimated processing volume, you may need to submit some information to the company. 

    After this, you may need to invest in hardware such as a card reader and a POS if you have a brick-and-mortar store or work with a website developer to enable eCommerce credit card processing on your site. 

    Merchant Accounts

    A merchant account acts like a bank account that allows companies to make and receive payments. To set up an account, you will need to work with a merchant account provider like Square or Stripe. 

    Payment Gateways 

    A payment gateway acts as a go-between for you and a credit card company, ensuring that the communication transmitted through it is secure. If you are looking for a payment gateway, some of the most popular card processors include PayPal, WePay, and Amazon Pay. 

    Why Do People Switch Credit Card Processors? 

    Several reasons why businesses may want to change credit card processing companies include issues related to expensive pricing, faulty equipment, or poor customer service. However, it is important to check for any termination fees you might have to pay. 

    Frequently Asked Questions

    Since credit card processing can be confusing if you’re new to the process, here are some of the basics. 

    How long do credit cards take to process payment?

    Credit card payments are usually credited on the same day unless a payment is made after the cutoff time. It may take up to 1-2 business days.  

    What are the methods for processing credit cards?

    Common credit card processing methods include swipe hardware, virtual terminals, and the use of mobile devices.

    Is Visa a payment processor?

    Visa is a card association, not a payment processor. The payment processor is what sends the payment information to Visa. 

    What is the difference between payment processor and payment gateway?

    While a payment processor is what enables the transaction, a payment gateway is what communicates the approval or decline of payment transactions. 

    How do I get a payment processor?

    To get a payment processor, you will need to submit an application online to the relevant company. 

    Credit Card Processing In A Nutshell

    Before you apply for an account with a merchant provider, do your research on the features, pricing, customer service, and reputation of the brand to ensure that you choose a card processing company that is the best fit for your business. 

    If you’re a high-risk business or have specific credit card processing needs, learn about what to do when a credit card processor turns you down, and feel free to browse our other guides on Processing Card! 

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