The use of credit cards is very common in the 21st century. You will not find one place out there which does not accept payment through them anymore.
In this article, you will find everything you need to know about credit card processing, processors, and merchant solutions.
What is Credit Card Processing?
To put it simply, it is a series of activities that a business is required to go through when a credit card is used to finish someone’s payments. The process can be done online, via phone, or face to face.
It’s very simple for the person who is paying through electronic transactions but not so simple for the business. The individual swipes it through the machine and is done with his part of paying, however on the other side there are a lot of steps involved to go through with the process of payment.
Who is Included in the Credit Card Processing?
As it is a long process that means that there are probably a lot of parties involved in the procedure. Below is a list of parties involved in the proceeding?
The cardholder is the consumer who is purchasing and making payments. In simple words, the person who owns the credit card.
The merchant is the business that accepts payments in exchange for the product that you will buy from them.
· Merchant Bank:
These are the banks that assist the businesses to accept the payments of their consumers with help of merchant accounts. They are also known as acquiring banks.
· Credit Card Processor:
The companies that make the process of electronic payment transactions possible. They are also known as payment processors. They join the credit card network, merchants, the merchant banks and make the communication between them easier.
· Payment Gateways:
A payment gateway is an online installment administration that, when incorporated with the web-based business stage, is conceived as the channel to make and get payments. Its job is to endorse the transaction process among the merchant and the client, get all the details of the transaction, course them to the merchant bank or the processor and send an accept or reject message to the dealer.
· Issuing Bank:
This is the bank of the cardholders that issues them their credit or debit cards. The issuing bank is in charge of paying the merchant’s bank for the products or services that the consumer buys.
· Card Network:
These are also known as card associations. These are the brands like Visa or MasterCard. They facilitate dealings or transactions between merchants and issuers.
Merchant solutions and Merchant Services:
In the past merchant solutions and services depended on ledge terminals to include card installments, preparing services to endorse the transactions, and trader records to store the cash from the deal.
In this century, the process has become more complex especially when e-commerce has been involved and people buy things online. Payment getaways permit clients to pay straightforwardly on the web, while web-based announcing services give the merchants the capacity to follow practically every part of a business on a PC.
There are companies and organizations that provide these services and merchant solutions like ours. These companies are known as merchant service providers and they provide merchant solutions like zero cost processing and reduced fee processing.
How does Credit Card operate?
The process of credit card processing may seem complicated but it’s simple when understood properly. For example, online businesses mostly offer online payments with the help of electronic transactions. Buyers present their debit cards through websites and applications utilizing payment getaways online.
Following are some basic steps explained in the easiest way possible for you to understand how this works:
- The very first step starts when the cardholder buys a product or a service from the merchant and hands him his card to pay for his things.
- Then the merchant accepts the information given to him which can be either in person or through phone or email when the cardholder does not have it with him.
- The merchant sends that information to the credit card processor to authorize the payment.
- The credit card processor further sends the information to the card network.
- The information eventually makes its way towards the issuing bank of the consumer.
- The issuing bank does its job by making sure if the consumer has enough funds in his bank to go through with the transaction, see’s if the purchase is legal or if any other kind of issue like if the card has expired arises.
- The issuing bank then sends the message of approval to let the consumer and the merchant know if the transaction process went smoothly or declined due to any problem.
- If the verification process doesn’t come across any issue then the amount is sent to the merchant’s account from the consumer’s bank.
- At the very end, the process of settlement is the official transfer of the exchange from the client bank to the bank of the merchant taking out the credit card processing fees. This process can take a few days.
What are Credit Card Processing Fees?
These fees are the charges that a credit card processor has for transactions. The fees can vary due to different reasons, one of them being the model your processor uses. Many organizations even have a huge load of covered-up charges in regard to credit card processing fees which is why you should be careful when choosing merchant solutions.
It revolves around three elements which are:
1. Interchange fees:
Interchange fees are the fees of the transaction process taken from the consumer. Whenever a consumer uses his card, the acquiring bank pays an amount to the issuing bank.
This fee is an interest of the purchase in addition to the transaction fee that is controlled by each card organization. Interchange fee addresses the biggest expense of credit card processing and is regularly affected by the sort of MasterCard associated with the exchange.
The motivation behind these changes is to help the issuing bank cover things like the danger of endorsing the deal, misrepresentation, and taking care of expenses.
2. Assessment Fees:
Assessment fees are taken by the card networks because the consumer is using their brand. This fee is not much but just a small amount which is calculated by the card network.
Assessment fees are not based on transactions instead they are based on things like if you used your credit or the debit card, foreign transactions, or transaction volume.
3. Payment Processor Fees:
The payment processor fee is the fee that a payment processor charges. This fee is paid as hidden or monthly fees with every transaction. This is also known as the payment processor markup, and it shifts relying on the estimating plan of the processor.