credit card processing

The Benefits of Credit Card Processing

Increasing sales while improving the customer's’ experience is on the mind of every business owner.  Consumers want the ease of being able to pay for the goods or services they need in a fast and convenient manner.  Whether the sale is generated online or from a storefront, giving customers the option to pay using either a credit card or debit card is becoming an essential part of business.

Being able to accept credit cards is a benefit for customers, but there are also benefits for the merchants.  We are evolving into a cashless society and most customers today carry little to no cash in their wallets.  When a merchant only accepts cash, they might be limiting or completely eliminating the buying power of their customers.  Merchants also have a tendency to see larger average tickets upon checkout when customers are not limited by the amount of cash in their pocket.  Many times restaurants will see this increase in average ticket price when accepting credit cards from their customers.  

Another benefit of having a merchant account is the ability to accept credit cards online.  Many merchants have expanded their businesses and entered the eCommerce marketplace.  By opening their doors to the internet, a business can be open 24 hours a day and reach a substantially larger customer base.  At a time when many customers prefer to make purchases over the internet, having an online presence can help increase sales and overall revenues for merchants.

How a Credit Card is Processed

When a customer attempts to make payment, there is a process behind the swipe of the credit or debit card. There are 4 different organizations involved in the processing of a credit card transaction:

  • Merchant Services Provider:  The merchant services provider works direct with the merchants to handle sales and support. Most merchant service companies sell their services through a Payment Processor.  
  • Payment Processor: The processor transmits information between the merchant and the Card Associations.  The information sent from merchants to the card associations includes authorization requests, refunds and daily batches.  Approval or declined authorizations, finalized refunds and daily reports are sent to the merchants from the card associations.
  • Card Issuing Bank: This is the bank that issues the credit or debit card to the consumer.  When a consumer applies for a credit card, they contact one of these banks and apply.  The card issuing bank maintains the consumer's account and provides access to merchants for the available credit. Examples include Capital One, Chase and Citi.  American Express and Discover each act as a card issuing bank and a card association.
  • Card Association:  This group consists of Visa, Mastercard, American Express and Discover.  They own and manage the networks that handle sending secure payment card account information between the banks and merchants.  Visa and Mastercard co-brand their services while American Express and Discover also act as card issuing banks.

When a card is swiped, dipped or tapped at a merchant location, account information stored on the card is sent for authorization to the payment processor.  Payment cards retain the cardholder’s account information in a secure format.  Payment cards use the EMV (embedded chip) or the magnetic strip (magstripe) on back to transmit information.  To combat the rise of fraud, payment cards have been moving away from the use of magstripes towards EMV. The EMV is a microchip embedded into a payment card that is capable of creating and sending dynamic authentication codes to prevent the risk of fraud.

As soon as the payment processor receives the merchant’s request for payment authorization, the processor passes the request along their network to the Card Association.  At the Card Association, transactions are accepted and transferred to the appropriate card issuing bank of the customer.  At the customer’s card issuing bank, account information is confirmed and payment authorization is either approved or denied. 

Transactions can be approved or denied for a variety of reasons including; account status, amount of available credit, fraud alerts, etc.  Once the card issuing bank makes a decision, the response is sent back to the merchant.  The information is relayed through the Card Association and credit card processor to the merchant location that initiated the payment authorization request.  

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How does Online Credit Card Processing work?

An eCommerce transaction occurs in an almost identical process, except for the addition of a payment gateway. A payment gateway is software program that provides a secure environment for online credit card processing for internet based transactions.  Payment gateways are generally a 3rd party program built for maximum security through encryption and remote operation, limiting the risk of fraud.  An online payment gateway is seamlessly integrated into the shopping cart of an eCommerce website.  This allows for a secure link between the merchant and their payment processor.  Sensitive customer account information can now be safely and securely transmitted from the customer’s computer to the credit card processor.  Once the customer’s credit card account information is captured, the information is sent to the customer’s card issuing bank for authorization.  The banks response is sent back to the merchant’s website by means of the credit card processor.

Companies such as Google Wallet and ApplePay provide a secure environment to store card account information and act as a payment gateway.  Credit card account information is stored on the phone and sent to the merchant’ credit card terminal encoded.  Similar to a swiped transaction, customer’s card account information is sent to the card issuing bank for authorization.

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How to choose a Credit Card Processing company

Partnering with the right payment processing company is important for the success in a business of any size. Working with a company that offers low fees, advanced software along with outstanding technical support can help a merchant grow and succeed.  Before signing a contract with a merchant services provider, ask about their company.  It is important to know what they provide merchants for resources and what they can offer merchants to simplify and improve their processes.

For more information about accepting credit cards or to begin your credit card processing services, please contact one of our helpful representatives.