credit card processing

Why 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 in a retail storefront, providing customers the option to pay using a credit card, debit card or e-wallet has become an essential part of business.

Allowing payments by credit cards is not only a benefit for customers, but there are also benefits for the merchants as we transition into an increasingly cashless society where most customers today carry little to no cash in their wallets, but have significant buying power with their debit or credit cards.  With the growth of integrated mobile payment systems along with the added incentives of travel or cash back rewards for using payment cards, the growing demand and usage by customers is validated.

When a merchant decides to forgo electronic payments and only accepts cash, they run the risk of limiting or completely eliminating the buying power of a large portion of their customer base.  This buying power that comes from the use of debit and credit cards equates to merchants seeing larger average tickets upon checkout when customers are not limited by the amount of cash in their pocket.  Many restaurants, retailers and other impulse purchases have benefited from larger average ticket prices by accepting credit cards and debit cards in their businesses.

Another benefit of having a merchant account is the ability to accept credit cards online, allowing many merchants to expand their businesses and increase sales by entering into the ecommerce marketplace.  By opening their doors to the internet, a business can operate 24 hours a day and reach a substantially larger customer base than previously available when selling solely out of a retail location.  At a time when many customers have become to feel more comfortable and now many times prefer to make purchases over the Internet, having an online presence can drastically help increase sales and the overall revenues for merchants.

How Credit Card Processing Works

When a customer attempts to make payment, there is a process behind the swipe of the credit card involving 5 different organizations, all of which handle different parts of the credit card transaction:

  • Merchant Services Provider:  The merchant services provider works directly with the merchants to handle sales and support. Most merchant service companies sell their services through a payment processor or merchant acquiring bank.
  • Payment Processor: The processor facilitates the transmission of card holder information into the card association network to be used for payment authorization requests, along with other functions including refunds, voids and daily batches occurring between the merchant's credit card terminal and the card association.
  • Merchant Acquiring Bank: This is the organization that works with both the merchant services provider and payment processor to underwrite and provide the financial services for the businesses using the merchant account. The acquiring bank accepts customer payments upon settlement and manages the disbursement of funds to the merchant.
  • Card Issuing Bank: This is the bank that works directly with the customer to issue the credit or debit card and provides the responses to payment authorization request.  The card issuing bank maintains the consumer's account information and uses that information to determine if a merchant's request for funding can be approved or declined. Examples of card issuing banks include Capital One, Chase and Citi while the companies of American Express and Discover each act as a card issuing bank and a card association.
  • Card Association:  The financial network owned and operated by Visa and MasterCard that handles the transmission of secure payment card information between the card issuing banks and merchant's credit card terminals.  Visa and MasterCard co-brand their services in the card network while American Express and Discover operate independently as their own card association, merchant acquiring and customer card issuing banks with separate networks.

When a customer card is swiped, dipped or tapped at a merchant credit card terminal, account information stored on the payment card is sent along with the transaction value for authorization to the customer card issuing bank.  Payment cards retain the cardholder’s account information in a secure format on both the EMV (embedded chip) on the front and the magnetic strip (magstripe) located on the back.  To combat the rise of fraud, payment cards have been moving away from the use of magstripes towards a more secure technology called EMV that operates with a microchip embedded into a payment card that is capable of creating and sending dynamic authentication codes in an effort to prevent the risk of fraud.

Once the payment card is accepted at the merchant credit card terminal, the account information is encrypted and the payment authorization request is sent through the payment processor to the card association for review.  At the card association, transactions are received, decrypted and transferred to the appropriate card issuing bank for a response to the merchant's payment authorization request.

Transactions at the card issuing bank are confirmed and then submitted for approval or denial based on a number of different reasons including; account status, amount of available credit, fraud alerts, etc.  Upon arriving at a decision, the card issuing bank's response is sent back through the card association's network onto the merchant location, informing both the merchant and customer of the payment request's status.

How does Online Credit Card Processing differ?

An ecommerce transaction occurs in an almost identical process of that when a card is accepted through a credit card terminal, except for the addition application of a payment gateway. A payment gateway is a software program that provides a secure environment for online credit card processing for internet based transactions.

Payment gateways are generally designed and managed by a 3rd party company that has designed this web application for maximum security through extensive encryption software to help mitigate the risk of fraud.  The online payment gateway is seamlessly integrated into the shopping cart of an ecommerce business, allowing for an affordable and secure link between the merchant and their payment processor.

Utilizing the payment gateway, sensitive customer account information can be captured through the customer's web browser, transferred into the card association network and sent to the customer’s card issuing bank for authorization.  In the same fashion as a credit card terminal, the banks response is sent back to the merchant’s website through the card association network and displayed on the merchant's website.

What are eWallets?

Companies such as Google and Apple have created virtual e-wallets that provide a secure environment to store card account information, along with bank account information and can plug into a payment gateway to securely send customer account information through the card association network to the card issuing bank for authorization.

Accept Credit Cards Today!

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 payment professionals.