Credit Card Processing

Credit Card Processing

Merchants opening businesses today will almost always require the services of a credit card processor. Being able to accept credit cards and debit cards have become so mainstream that most younger consumers rarely carry around physical cash. This change in consumer purchasing habits has lead to the growth in credit card processing among retail storefront transactions.

Payment cards, including debit and credit cards, have grown with the dominance of the online ecommerce industry. The need for quick and reliable payments is the foundation for every online merchant's success. Most payment processing services will allow for both online and swiped transactions through the same account.

What is Credit Card Processing?

Accepting payment for any transactions, regardless if it a product or a service, that is done using a bank payment card is generally referred to as credit card processing. Both debit and credit cards are grouped under this term is due to the first networks were operated using credit and to today these networks handle both debit and credit transactions.

The largest payment card networks are owned and operated by Visa, MasterCard, American Express, and Discover. These companies license access to their payment card networks for banks and credit unions to gain access to their millions of merchant locations. Once part of the network, customers of these banks can freely use their credit or debit cards to make purchases without any trouble.

How to Accept Credit Cards

The most common ways that merchants can accept payment using credit card include:

  • Online
  • Swiped
  • MOTO

The most common method used today involves swiping a debit or credit card at a merchant location. Whether it is at a gas station pump or in a retail store, card account information is acquired through the swiping of the black strip or dipping of the EMV chip card.

Online transactions, using either an ewallet or stored card, are the fastest-growing segment of the credit card industry. Merchants have their ecommerce website's shopping card linked to their payment processors payment gateway to send website transactions. Using data encryption and other security protocols, merchants are able to protect a customer's payment card information from fraud or other security breaches during transmission to the payment card network.

The original method of accepting payments is Mail Order and Telephone Order, otherwise known as MOTO. Manually accepting the payment card information, merchants can either enter account information into a terminal or call into the credit card processor. Prior to having terminals hooked to the internet or a phone line, all transactions were accepted with a manual credit card imprinter.

How a Credit Card Authorization works

When a credit card is authorized, the information is passed through a number of different organizations to complete the authorization process. The same type of process is used for debit cards seeking a payment authorization. Once a business has been approved for a merchant account, their equipment will allow them to send transactions through the network and start making customer sales.

Who is involved in an Authorization

Every transaction will require different financial organizations to work together to receive and authorize a transaction. These businesses include:

  • Merchant Acquiring Bank
  • Card Issuing Bank
  • Payment Card Network

The merchant acquiring bank, also known as the acquirer, sets the business up with their merchant account. Most times this involves filling out an application and going through a thorough application process. Some acquirers, such as e-wallets or payment processors might have a quicker application process than others depending on the type of account the business is applying for. The merchant acquirer will underwrite the account and handle the ongoing support of the merchant's technical and financial needs during the relationship.

The customer has a completely separate bank that handles their transactions. This bank, also known as the card-issuing bank, manages the customer's account by providing security and support for their needs. The card issuer receives the merchant requests for transaction authorization. Going through a series of security and fraud checks, followed by a financial check for the amount, the card issuer will send back a response to the merchant location.

The common organization between the merchant and customer partners is the payment card network. The network handles all of the security and handling of card account information between the merchant location and the customer's bank. The members of the Visa and MasterCard payment card network receive the merchant requests, determine the customer's bank, and route the authorization request to that bank. In the case of American Express and Discover, they manage their own closed networks, so all information is retained internally.

Authorizations are finalized at the end of the day along with any returns or voids that might have occurred. This finalization process is done during the batch when tips or other adjustments made after the authorization can be completed.

While the entire process is extensive, requiring multiple different financial and tech companies to be involved, it only takes seconds for payments to be authorized for merchants and customers to take their goods.

Common Industries accepting Credit and Debit Cards

Almost every industry today accepts credit or debit cards. It is hard to find any industry that still relies solely on cash for their payments. Even car washes and laundromats, two of the most quintessential cash businesses have solutions for their merchants to accept payment cards. Today, many different industries have all but completely gone electronic, requiring customers to make payments using either debit or credit cards.

Industries that have shifted to primarily credit cards

  • Hotels
  • Airlines
  • Rental Cars
  • e Commerce
  • Restaurants
  • Bars
  • Pharmacies
  • Supermarkets

Many of these industries will use specialized equipment to streamline their operations while combining their payment processing. In some instances, businesses might find they need the services of a high risk credit card processor due to the products or services sold. Working with an experienced payment processor like Allied Payments, merchants with nearly any type of business can find the proper solution to accept payments at their business.

Required Documents for Merchant Account Approval

Underwriters from various banks will have their own proprietary applications that must be filled out for review. While these applications will vary between payment processors, the supporting documents needed to accompany those applications are generally the same. The most common documents required include:

  • Merchant Application
  • Color copy of Government ID
  • Previous Payment Processing Statements
  • Previous Checking Account Statements

Providing a completed application is the first, and usually most important, step to begin the underwriting process. Submitting the initial application with all the correct information will prevent any unnecessary delays or raise any red flags during the due diligence process.

The identity of all individuals named on the application is a standard requirement. Submitting a color copy of a government ID of each applicant will help the processor's underwriters complete their KYC (Know Your Customer) checks to prevent the risk of any fraudulent or illegal activities.

Businesses that are currently operating will generally need to submit copies of recent financials. Usually, the last 3 to 6 months of both checking account statements and payment processing statements will need to be included in an operating businesses' application package.

Underwriters use the previous financials to gauge how the business operates. If checking account balances are consistently overdrawn, payment processors might become concerned about the strength of the company's financials. Processing statements are used to see the percentages of chargebacks and returns, signs to a payment processor about the quality of products or services being sold. High numbers could raise concerns that the business is experiencing problems with its customers and could warrant more questions.

Providing a full application process from the beginning with the above documents will help underwriters quickly and thoroughly go through their due diligence period. Missing parts of the package can create delays in the underwriting and push the otherwise quick process to a week-long wait.

Accept Credit Cards Today!

Businesses selling through retail storefronts or online can benefit from Allied Payments. Our team of payment processing professionals can help get your business accepting credit card or debit card payments fast.

Working with a network of payment processing banks, our team can approve nearly any merchant as fast as the same day. Regardless if your business is high risk or a general retail storefront, we can help find the best solution. Contact us today!

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