Credit Card Processing Buyer's Guide
We live in a very digital and technological world, so it makes sense that more than 70% of all purchasing transactions today take place with either credit or debit cards. Because so many people rely on their credit card to make purchases, if your business isn’t already set up to accept credit card payments, you’re really behind on the times.
Credit card processing can be a really confusing process. There’s a lot more to merchant credit card processing than simply swiping a card and having money magically appear in your bank account. So, if you’re looking for good credit card processing companies to help your business thrive, we’re here to help. But first, let’s take a look at how credit card payment processing works.
How Credit Card Processing Works
The first thing you need to know about credit card processors are the four different parties involved in each transaction. They are:
- The Merchant – The person or small business receiving the payment
- The Acquiring Bank – The bank that the Merchant has their account set up with
- The Customer – The person who is paying for the goods or the services via credit card
- The Issuing Bank – The bank that gave the Customer the credit card
The credit card process is actually a six step process that goes as follows:
- The Customer submits his credit card (either in person or by manually typing the information on a website) for payment.
- The credit card information is sent to the payment gateway via a telephone line (in person transactions) or the internet.
- The payment gateway routes the payment to the Acquiring Bank while the credit card processors submit the payment to the credit card network.
- The Issuing Bank is notified of the transaction after the payment is cleared. The Issuing Bank then validates the credit card number, expiration date and payment amount. A hold is placed on the Customer’s account for the payment amount.
- Once the transaction is approved, the authorization goes back through the credit card network, the processor, payment gateway and back to the Merchant.
- The Acquiring Bank receives the money for the goods/services, which completes the transaction.
Understanding Credit Card Processing Fees
Now you understand the basics of credit card processing, let’s take a look at some of the fees you’ll likely pay. The type of business you run will determine the type of credit card processing fees you’ll pay each month.
- Interchange Fees – These are the fees the Issuing Bank charges. These fees cover the cost of things like the bank’s line of credit, credit card rewards benefits, cardholder statements, reporting, etc.
- Discount Rate – These are the fees the Acquiring Bank charges
- Chargeback Fees – These are fees you pay when a cardholder disputes a transaction and has their money refunded
- Monthly Minimums – This is the minimum amount in fees your credit card processor will collect from you. If actual fees don’t meet the minimum amount, the processor will require you to still pay the minimum fee.
- Monthly Fees – Most credit card processing services charge a monthly flat fee to all their customers for using their service. This fee is usually between $5 and $15.
- Equipment Fees – Some companies will lease equipment to you. Make sure you don’t pay for terminal features you won’t need.
You don’t need to understand every single detail of credit card processing to run a successful business, but it is helpful to have a working knowledge before you select a service. Take a look at our list of reviews to see which online credit card processing services are best for your small business. Most top companies only take a day or two for account setup, so you can sign up today and start accepting credit cards tomorrow.