In 2016, the total amount spent via credit card transactions in the U.S. was 111.1 billion dollars. That is a lot of money for one payment type.
Almost every company that accepts payments, accepts credit cards as a payment option. But how many owners of those same companies can claim a firm understanding of how they get their money?
Credit card payment processing is enigmatic, but it is still important to understand how the process works. How else can you make an informed decision about which credit card processing solution will work best for you and your company?
To learn more about what you should look for in a merchant service solution, read on!
What is Credit Card Processing
In the simplest of terms, Credit Card Processing is the act of accepting payment from a consumer for goods or services via a credit card. The card is run through one of several terminal types and the terminal, in turn, spits out a decision about whether the payment method was accepted or declined.
But how does it do that?
To find the answer, we will follow a transaction on its journey from purchase to settlement. We will look at the key features of the process and discuss items you should be aware of when choosing which payment card processing solution is the best one for your company.
A consumer enters your store and comes to the counter with several items to purchase. Your customer has multiple payment options available with which to pay.
- A standard Swipe Magnetic Stripe card – While these cards are all but obsolete, the time they take to process is only about two seconds on average. This speeds up the time it takes to process your transactions. No one likes to wait.
- AN EMV Chip Card – The EMV chips provide customers with an extra layer of security. The EMV chips generate a unique transaction code to further validate cardholders. They also take extra steps to hide sensitive information from identity pirates. The downside is, processing takes an average of 15 seconds.
- NFC Enabled Card – The customer sets up their virtual wallet so all of the contact information is on a smartphone or other compatible device. This device can then be held up to the credit card processor to establish a wireless connection that does not require pairing. This is the ultimate in frictionless, secure credit card processing.
When deciding which processing solution is best for you, make sure your processing company supports the payment option your clientele are most likely to use.
Obtaining the Credit Card Details
Your customer has chosen their mode of payment and it is time to capture the customer’s credit card information and pass it on to the acquiring bank. The acquiring bank is the merchant bank that provides your credit card processing equipment.
Merchant banks are members of the card associations like Visa, AMEX, and Mastercard. It is important to note that these are the people ultimately responsible for your sales payouts.
Acquiring banks can issue many different types of terminals to extract and send credit card and transaction details.
- Swipe Terminal – This type of terminal is for swiping magnetic stripe cards. They can usually be used to key information in as well.
- Dip Terminal – The dip terminal is used with EMV chip cards. They almost always have a swipe and key function as well.
- NFC Enabled Terminal – Most terminals can sync with most mobile devices for NFC, or Near Field Communication, processing. A separate terminal type is not usually needed.
- Website or App via a Payment Gateway – This is a one size fits all type of solution. They are great for online stores where you will not be swiping credit cards. If you do have a storefront, payment gateways often provide a terminal. This is a very flexible alternative but may not have some of the reporting features other options offer.
- Mobile Card Reader or Mobile Point of Sale – For those who go to their customers and for some other small businesses, a mobile card reader may be the perfect solution. They are both convenient and easy to use.
- Virtual Terminal – A virtual terminal does not require additional hardware to use. You only need access to a browser and from there, you can manually key in the information. This is another great choice for online marketplaces or for small businesses who do not have much capital to work with.
Once you decide which terminal will work best for you, your merchant service provider will link your merchant account to the device or gateway. While we support each of these options, some payments processors are limited in their product offerings.
Once you have obtained all the necessary transaction and card details, it is time to transfer the data to the processor or acquiring bank to get approval.
The important thing to take away from this step is processing time. While the merchant bank may not always be responsible for downtime, they are the one element you can control once the data leaves your terminal.
Any good merchant service provider will be able to tell you:
- Their uptime history
- Preventative steps they have taken to mitigate downtime
- Alternative options when downtime occurs
After the data reaches the acquiring bank, the information is sent to the cardholder’s bank, or issuing bank via the card associations (Visa or Amex) network.
The issuing bank validates the transaction card details and then sends its approval or denial back to the merchant provider via the card associations network.
Again, there isn’t a lot you have the ability to control in this part of the process, but you should still consider the types of transactions you process.
Interchange fees are charged by the card network your customer uses. As a rule interchange fees favor big ticket, non-convenience transactions. You can’t change this.
But if you own a company like a fast food restaurant, cafe’, or gas station, you can look for a credit card payment processing company with a fee structure that works with convenience based companies that usually have a high volume of small transactions to minimize cost. This is why we offer our flat rate pricing structure to tailor to your needs.
Ready to Fill Your Credit Card Processing Needs?
Now that you understand more about the process behind credit card based commerce, you should be ready to make an informed decision about which credit card payment processing company you will use.
If you still have any questions about which options will work best for your needs, feel free to Contact Us.