Credit Card Processing

Credit and debit card payments are some of the most prominent forms of payment in the world. The use of cards for transactions has been increasing for nearly a decade and shows no sign of slowing down. As a result, more merchants are including credit card processing as a part of their day-to-day operations.

Consumers expect credit cards to be an available option for making purchases. In fact, many customers are deterred from doing business with merchants who do not accept credit cards. As a result, it’s in the best interest of businesses to learn about and implement credit card processing.

What is Credit Card Processing?

The National Automated Simply stated, credit card processing is the workflow that allows a merchant to accept credit and debit card payments in exchange for goods and services. There are multiple entities involved in processing a credit card transaction. There are also a few tools necessary to get the job done, including the following:

  • Merchant Account
  • Payment Processor
  • Payment Gateway
  • Software
  • Hardware

Many payment processors offer bundles that include all of these tools, while others only offer one or two. In a nutshell, the payment processor facilitates the transaction through a gateway, which can be hardware, software, or both. It’s important to understand how the process works so you can choose your provider wisely.

What is a Credit Card Processor

A payment processor is a service provider who acts as the liaison between your business and your customers’ credit card companies. They handle all of the logistics of getting approval for transactions and moving the money from your customer’s bank account to yours.

Some of the top processors on the market today offer payment gateways with embedded software that can process transactions for you. They also generally offer a merchant account that essentially holds the money during the approval process and then moves it into your regular business banking account.

How Does Credit Card Processing Work?

There are several steps involved in processing a credit card transaction.

The customer presents their card information to make a payment. This can happen at a fixed terminal (payment gateway) where the customer swipes their magstripe, inserts an EMV chip card, or uses a contactless payment option. Some consumers may also use digital and eWallets like Apple Pay. If the customer is making a payment online, they will enter their card information into the payment screen on the website from which they are making a purchase.

The information is sent to the processor. During this step, the payment processor will communicate with the customer’s bank (called the card-issuing bank). This is done through the appropriate card network such as Visa or MasterCard. These networks are encrypted to keep the customer’s card information secure.

The card-issuing bank reviews the transaction and either approves or denies it. The bank will check the customer’s account and verify whether or not there is enough money in the account to complete the purchase. They will also verify the billing address that was entered if the transaction is being made online. If the transaction is being made in person, the system may ask for a zip code or PIN number. This is one of many security options that merchants can use to protect their customers from potential fraud. If the billing addresses or zip codes don’t match, the transaction will be denied.

Approval or denial is sent back to the processor. Once the bank verifies that the transaction is or is not valid, it will send that information back to the credit card processor, which then submits the information to the terminal. The terminal (fixed, mobile, or virtual), will then tell the customer whether or not their transaction was approved.

Transactions are batched at the end of the day. Most processors will approve the transactions by the end of the business day, but some will take 48 hours or more. During this step, the customer’s account will be charged and the merchant’s account will be credited with the funds.

How to Accept Credit Card Payments

Accepting credit card payments is an important step for every business. There are very few businesses that can be successful without accepting cards for payment, especially with the ever-increasing number of credit card users in the world. The process itself is fairly simple but requires some decisions on the part of the merchant.

Choose the Payment Methods You Want to Accept

First, you need to choose what types of credit cards you’d like to accept. It is advisable to accept as many forms of payment as possible, to make it easy on your customers. However, some businesses choose not to accept certain cards like AMEX or Discover because their transaction fees tend to be higher than other cards. Here are the average transaction fees for different cards:

  • Visa: 1.29% + $0.05 to 2.54% + $0.10
  • Mastercard: 1.29% + $0.05 to 2.64% + $0.10
  • Discover: 1.48% + $0.05 to 2.53% + $0.10
  • American Express: 1.58% + $0.10 to 3.45% + $0.10

In addition to major credit cards, you need to consider whether or not you want to accept digital wallets, eWallets, or other forms of payment. While these are processed a little differently than credit cards, they still need to be an overall part of your decision.

Decide How You Will Accept Payments

This decision is generally pretty easy, based on the type of business you have. If you’re an online business, you’ll obviously need to accept payments online. If you have a brick-and-mortar store, you can choose to do only in-person transactions. Most businesses offer a combination of online and in-person payment options because it expands their customer base.

Choose a Payment Processor

Based on what forms of payment you want to accept and how you want to accept them, different processors may be a better fit for your business than others. When evaluating payment processors, you’ll need to consider the following items (among others):

  • Processing fees and fee structure
  • Processing speed
  • PCI Compliance & other security features
  • Payment methods accepted
  • Types of payment gateways available
  • Customer service and tech support

A good payment processor will score highly in all of these categories. For example, you may find a processor that is faster than all the others but is not PCI compliant, which puts you and your customers at risk. It’s best to find a processor that has high ratings in all of these areas because the experience for you and your customers will be significantly better.

Start Accepting Credit Cards Today!

Our team of professionals can help you start processing credit cards quickly and easily. If you’re ready to move forward, let Allied Payments help! We can walk you through the details, answer your questions, and get you moving in the right direction.