Credit Card Processing – The Basics

Credit Card Processing – The Basics

Today, accepting credit and debit cards is a must.  Offering credit cards as a convenient form of payment can make the difference between making the sale and losing it to one of your card-accepting competitors.  Credit cards not only increase the consumer’s impulse purchases but increase the average sale amount.  Despite the obvious advantages, accepting credit cards brings fees, regulations, and requirements.  Educating yourself on industry terms, the payment process the players and fees will save you time, money, and a lot of turmoil down the road.

RATES OR DISCOUNT RATE

The rate is the primary cost you’ll pay for the processing of a transaction and the depositing of the funds into your account.  Merchant Banks will often bundle their fees with those of the processor, issuing bank, and card associations (Master Card/Visa) into a combined rate based upon a percentage of the sale plus an additional flat fee per transaction.  While the interchange fee will always remain the same, you may be able to negotiate lower processing fees based on your volume of business, the type of business you have and the credit history of you and the business.  New businesses are always welcomed.

The rate for each transaction depends on how it was processed – online, in-person, or by phone and what kind of card is being presented.  Transactions done in person where the actual card is swiped will generally qualify for the lowest rate.
 
   
Qualified Rate is the percentage that’s charged whenever a merchant accepts and processes a transaction using an approved processing solution when the customer has presented a Debit Card, Standard Credit Card or certain Merit cards.  This is usually the lowest rate you can receive, and often the one quoted to a merchant inquiring about rates. 
   
Mid-Qualified Rate is the percentage that’s charged whenever a merchant accepts and processes a card that does not qualify for the lowest rate.  This may happen when a card is manually keyed into a terminal instead of being swiped or when a Rewards or Business card is being presented. 
   
Non-Qualified Rate is the percentage that’s charged whenever a merchant accepts and processes a card that does not qualify for any of the lower rates.  This may happen when a card is manually keyed into a terminal versus being swiped, address verification isn’t performed, information is missing, or the authorization is not settled within the allotted time frame (usually 48 hours).  Certain Foreign Cards, Government Cards or World Cards may also qualify for this rate.

CHARGEBACKS

The cardholder has up to 60 days from the statement date to dispute a charge.  When the cardholder files a complaint with the issuing bank, you will be charged a chargeback fee of $20 - $35, whether you win or lose the ruling.  It is important to offer good customer service and have your return policy clearly stated in writing.

ADDRESS VERIFICATION FEE

For transactions where the card is not present, the merchant may be required to verify the cardholder's address to qualify for the better rate.  All processors charge a flat fee per transaction for this verification that is either listed separately or bundled with your rate.

TRANSACTION FEE

All transactions are charged a transaction fee to cover the cost to transmit the data to and from the cardholders bank, the acquiring or merchant bank and finally your bank.

MERCHANT SERVICE PROVIDER

A merchant service provider acts as an advocate for all communication and relationships between the merchant and the card associations, processors, and merchant bank.  Often viewed as an extended sales force for the acquiring bank, merchant service providers are responsible for setting up your account with a Processing Bank and coordinating either a compatible Gateway or a terminal.
 
MERCHANT ACCOUNT

It defines the relationship you have with a Merchant Bank.  Some Merchant Banks provide Merchant Accounts directly to businesses while some banks use Merchant Service Providers or Merchant Account Providers to acquire or sign up businesses.  A Merchant Account gives you the authority to accept credit cards.  Credit worthiness of the business or owner is used to determine who gets a Merchant Account and at what rate.

PAYMENT GATEWAY

Acting as the front-end connection to the card associations, payment gateways transfer payment data from the merchant to the issuing bank for approvals and to the processor for payments.  These gateways support most point-of-sale systems, banks, processors, and merchant types.  Every online Merchant needs a gateway.

PROCESSOR OR PLATFORM

Processors or the platform handle the transmission of payment data that's necessary to authorize and settle credit card transactions.  Front end processors deal with up-front card authorization, connectivity to card associations, and network authorization.  The back-end processor receives and forwards settlement batches to the issuing banks on a scheduled time frame.  Processors charge a fee for each transaction, which is usually bundled into the Transaction Fee.

MERCHANT BANK

Also known as the acquirer or the acquiring bank, the merchant bank is the financial institution that provides you with a merchant account, and handles acceptance and payment of all credit card transactions at the quoted rate.  For every transaction you make, a portion of your rate is paid to the issuing bank and to the card association.

MAP OF A TRANSACTION

Merchant submits a credit card transaction for authorization.  The transaction is sent via a gateway or a terminal to the cardholders bank for Approval  
At the end of the day the Merchant sends all this transactions, called a ‘Batch’, to the Processing Bank through the gateway or terminal  
The Processing Bank collects the money from the Cardholders Bank and deposits the funds into the Merchants home bank account  


REGULATIONS

There are many regulations you need to be aware of when accepting credit cards. Ignoring these guidelines could lead to fines or the closure of your Merchant Account.
 
 
Don't run your personal credit card through your own merchant account or use it to provide cash to yourself or a friend. 
   
Don't place minimum or maximum limits on your transactions.  Regulations stipulate that if you are going to accept credit cards, you must accept them for any transaction. 
   
Don't charge any sort of usage fee for credit card transactions to offset the cost of accepting credit cards.
 
Don't split a transaction into smaller transactions.  You may open yourself up to a chargeback.
 
Don't request a credit card to guarantee a check. 
   
Verify the identity and expiration date on the card. 
   
Truncate the account numbers on your receipts.  Each state has its own laws governing what can and cannot appear on the receipt. 
   
Take every measure possible to prevent duplicate transactions. 
   
Read your merchant agreement.  It outlines all the various fees and charges, as well as specific rules and regulations that you need to be aware of. 
   
Make resolving customer issues a priority.
 
Take advantage of the variety of fraud screening products and services available to merchants. 
   
Ensure that old merchant accounts are properly closed and terminated. 
   
Maintain the proper account for your business.  Trying to process an Internet transactions with a "Retail" merchant account can lead to serious fines and even the loss of your merchant account.

   
Please Call For Sign Up