Sophisticated business solutions are a key factor in helping companies small and large find success. As competition for a share of the market grows fiercer, perhaps you have been looking for ways to give yourself an edge. Taking advantage of credit card processing service providers allows you more flexibility when taking customer payments and could increase the amount of business you do. There are almost two hundred million card holders in the United States—a consumer population worth tapping in to. Before adding to or changing your payment system, it can helpful to first understand how a credit card processing service works.
Processing transactions with the help of credit card processing service companies involves several key figures. To understand the process, it’s important to know who they are. Let’s review the most common figures.
• Customer: The person or company doing the buying.
• Merchant: The entity that sells products or services to customers.
• Payment gateway: An application that authorizes payments from customers. The payment gateway can also be used by the merchant to oversee transactions and billing. May also be referred to as a terminal.
• Acquiring bank: The financial institution that provides the merchant with the credit line necessary for accepting credit card payments.
• Card issuer: A company that has issued a credit card to a customer.
• Merchant account: The account that receives the profits resulting from a credit card sale. A merchant account is necessary in order to process card payments.
Amazingly, despite how many institutions and people are involved in the transaction, the entire card paying process generally takes no more than three seconds, so how does the money move through these figures?
Step One: Transaction Begins
The first step in the process is quite simple. Customers approach the merchant to make a purchase and give a credit card for payment. The best credit card processing service will not limit you on what kind of cards you can accept, but there may be extra fees associated with cards issued from certain card companies.
Step Two: Payment Information Is Entered
After the customer presents the merchant with a card in order to make a payment, the merchant must enter the card information into the system. Depending on the credit card processing service providers you are working with and the nature of your business, this may happen when the customer or the merchant swipes the credit card through a scanner. The scanner reads the card and inputs its information into the system. Some systems will require the merchant to key in information. For online businesses, the customer usually keys in information or gives it verbally to the merchant via a customer service phone call.
Step Three: Card Is Verified
Once payment information is in the system, the transaction information is sent to the card issuer via the acquiring bank. In order for a transaction to be approved, the card issuer must verify that the card is valid, that the balance on the card possesses sufficient funds to cover the transaction, and that the account has no holds. If the card is approved, the transaction can continue. If the transaction is not approved, the merchant is notified and the sale will not complete as is, requiring the customer to give another form of payment.
Step Four: Funds Are Transferred
Funds are transferred from the customer’s credit card account to the merchant account after the transaction is approved. Merchants who have their merchant account with their acquiring bank are more likely to have the funds sooner. If the merchant account is with a financial institution other than the acquiring bank, the funds transfer process can take up to 72 hours to complete. The customer should see the transaction on their next card statement from the issuer. When credit cards are given for payment, the issuer provides the funds to the merchant and the customer must pay the issuer the amount given to the merchant as noted on the statement.
Fees for Services
Even the best credit card processing service providers charge you for each transaction they help you complete. Each company is different, so the way fees, which may also be referred to as discount rates, are calculated will vary from service to service. Discount rates are usually figured in one of two ways: either by flat rate or by a set percentage. Services that use a flat rate discount rate charge a specified amount per transaction. Services that use the percentage model require a certain percentage of each transaction for their services. The percentage should be the same for all types of transactions unless otherwise specified in the contract between the processor and the merchant.
Should one of your customers return an item, request a refund for services rendered, or dispute a charge as fraudulent, returning funds to customers will require you to complete a chargeback transaction. In a chargeback, funds backtrack from the merchant account through the processor and are returned to the customer’s card. Some credit card processing service companies may have fees associated with this type of transaction as well, so it’s best to ask potential providers about their policies before contracting any service.
Having a basic understanding of how the credit card processing service works can help you make more informed decisions when trying to choose from among the best credit card processing service companies. Being able to identify key figures—such as the acquiring bank or the payment gateway—in the process and the terms that refer to them will help you understand specific services and how they might apply to your situation. Finally, keep in mind that there are fees associated with using a card processing service. In order to make the best choice for your business, you will need to shop around and compare companies and services. When evaluating whether or not a service is right for you, be sure to ask the provider about what kind of fees are built in to the contract and how they are calculated. Keep in mind that the increase in business you will probably see by accepting credit cards may more than make up for the extra overhead, so take advantage of all these services have to offer and grow your business today.